2022
ARTIS REAL ESTATE INVESTMENT TRUST
TSX: AX.UN
ANNUAL REPORT
ON THE COVER:
BOULDER LAKES BUSINESS PARK
Twin Cities Area, Minnesota
DISCLAIMER AND FORWARD-LOOKING STATEMENTS
NOTICE WITH RESPECT TO NON-GAAP & SUPPLEMENTARY FINANCIAL MEASURES DISCLOSURE
In addition to reported International Financial Reporting Standards (“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”), 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”), 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.
Management believes that these measures are helpful to investors because they are
widely recognized measures of Artis’s 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. For a full description of these
measures and a reconciliation to the most directly comparable measure calculated
in accordance with IFRS, please refer to the “Notice with Respect to Non-GAAP and
Supplementary Financial Measures Disclosure” section in the REIT’s 2022 Annual
Management’s Discussion and Analysis (enclosed in this Annual Report).
All figures are presented in Canadian dollars unless otherwise noted. The
information in this Annual Report should be read in conjunction with the REIT’s
audited annual consolidated financial statements and management’s discussion
and analysis for the years ended December 31, 2022, 2021 and 2020. These
documents are available on SEDAR at www.sedar.com or on Artis’s website at
www.artisreit.com.
Certain statements contained
in this Annual Report are “forward-looking
statements” within the meaning of applicable securities laws. Forward-looking
statements reflect management’s expectations regarding the future growth, results
of operations, performance, prospects and opportunities of Artis. Without limiting
the foregoing, the words “expects”, “anticipates”, “intends”, “estimates”, “projects”,
and similar expressions are intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on forward-looking statements.
All statements other than statements of historical fact contained or incorporated
by reference herein may be deemed to be forward-looking statements including,
without limitation, statements regarding the timing and amount of distributions
and the future financial position, business strategy, potential acquisitions and
dispositions, plans and objectives of Artis.
Such forward-looking statements reflect management’s current beliefs and are
based on information currently available to management. Artis cannot assure
investors that actual results will be consistent with any forward-looking statements
and, other than as required by applicable law, Artis assumes no obligation to
update or revise such forward-looking statements to reflect actual events or new
circumstances. All forward-looking statements contained in this Annual Report are
qualified by this cautionary statement.
Forward-looking statements may involve significant risks and uncertainties. A
number of factors could cause actual results to differ materially from the results
expressed or implied in forward-looking statements including risks relating to the
COVID-19 pandemic, real property ownership, geographic concentration, current
economic conditions, strategic initiatives, debt financing, interest rate fluctuations,
illiquidity,
foreign currency, tenants, SIFT Rules, other tax-related factors,
competition, reliance on key personnel, future property transactions, general
uninsured losses, dependence on information technology systems, cyber security,
environmental matters and climate change, land and air rights leases, public market,
market price of the REIT’s units, changes in legislation and investment eligibility,
availability of cash flow, fluctuations in cash distributions, the 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. Refer to the section entitled “Risks and Uncertainties” in the REIT’s
2022 Annual Management’s Discussion and Analysis and the section entitled
“Risk Factors” in the REIT’s Annual Information Form dated February 28, 2023, for
additional information regarding risks and uncertainties.
Artis Real Estate Investment Trust
table of contents
Letter To Unitholders .................................................................................................................2
Artis At A Glance .............................................................................................................................9
Vision and Strategy ..................................................................................................................... 10
Portfolio and operational performance .................................................................... 12
Developments ................................................................................................................................. 16
Balance sheet and Financial performance ............................................................... 24
Capital allocation ......................................................................................................................26
Environmental, Social and governance ......................................................................29
outlook ..............................................................................................................................................32
corporate information ...........................................................................................................32
Management’s discussion & analysis ............................................................................35
consolidated financial statements ............................................................................... 87
STAPLEY CENTER
Greater Phoenix Area, Arizona
The past year presented both opportunities and challenges for Artis.
As the year progressed, we at Artis were pleased to see signs that
the pandemic was behind us. Our tenants had endured nearly three
years of difficult and volatile times, with continuously changing
government restrictions, employees working from home, and a
general hesitancy towards visiting or congregating in public places.
Supporting our tenants during this period by keeping our buildings
safe and open and helping tenants plan and execute their return-to-
work arrangements has been a critical focus for us. Our tenants have
been adaptable and have shown their resilience during this time. We
are pleased to report that our portfolio occupancy is strong at over
90% and we continue to be encouraged by the consistent increase in
leasing momentum we experienced throughout the year.
Notwithstanding these reasons for optimism, new economic
headwinds emerged for the real estate sector in 2022 and have
continued into 2023. The challenging macroeconomic environment
and, more specifically, rising interest rates, have weighed negatively
on market sentiment towards real estate and impacted our business.
We have taken these factors into consideration when decision-
making and planning for 2023 to mitigate certain risks, manage
our overall interest costs, and remain focused on our fundamental
goal of maximizing value for unitholders. We are fortunate to have
strong relationships with many financial institutions that have stood
by our side throughout the pandemic and beyond. As a result, our
access and ability to secure financing has not been hindered and
we continue to maintain sufficient liquidity to manage our portfolio
and pursue our strategy. In 2022, we renewed the first tranche of
our revolving credit facilities in the amount of $400.0 million for an
additional two-year term. We also issued Series E senior unsecured
debentures for gross proceeds of $200.0 million, bearing interest
at a fixed rate of 5.6% for a three-year term. We continue to work
diligently on managing upcoming mortgage maturities.
With respect to our financial performance in 2022, one of our key
performance indicators (“KPIs”) and what I continue to believe to be
our most important financial metric, is NAV per unit. At December
31, 2022, our NAV per unit was $17.38, representing a slight increase
over the prior year’s NAV per unit of $17.37. The $0.01 increase in NAV
per unit, combined with a regular common unit distribution of $0.60
annually, equates to a total return of 3.5%. This comes on the heels
of generating a 20% return in 2021 (when calculated using the same
methodology) for our owners. These calculations do not include the
special distributions that were declared in 2022 of $0.16 per unit (of
which $0.08 was paid in cash and $0.08 was paid in units) and in
2021 of $2.39 per unit (of which $0.32 was paid in cash and $2.07
was paid in units). We are disappointed with the 2022 return metrics
and the fact that our units continue to trade at a significant discount
to NAV. It is widely known that diversified REITs are out of favour; yet,
our operating metrics demonstrate that our diversification strategy
has proven its value during one of the most difficult times the sector
has seen in years. We remain committed to narrowing the discount
between our trading price and NAV per unit and will consider all
means and tools available to achieve this. We are also mindful of
the two-to-three-year timeline we presented to unitholders in March
2021 for implementation of our Business Transformation Plan. If,
over the course of 2023, our units continue to trade at a significant
discount, market permitting, we will consider other options available
to achieve and fulfill our commitment to Artis’s unitholders.
Last year I discussed the principle of intrinsic value, an investment
strategy adopted by Warren Buffett. This strategy has driven much of
our decision making since March 2021, with a focus on building value
for our owners through disciplined and thoughtful value investing.
I continue to believe that following this approach will enable us to
Letter to Unitholders
grow NAV per unit, which defines the value of Artis’s units despite
what the market might otherwise suggest.
As part of our value-investing strategy and capital allocation decision
making, we have sold assets over the past two years and have used
a portion of the sale proceeds to invest in undervalued companies or
REITs. When we invest in other companies or REITs, we are buying
a piece of those businesses – or, put a different way, a piece of the
real estate portfolio owned by that company or REIT. Once again,
we do this because we believe the intrinsic value of that business or
portfolio is much higher than the market is giving it credit for and,
relative to other investment or capital allocation opportunities, we
believe the investment will ultimately produce a better return on our
capital in the long run. I will discuss this further in the context of our
investments in Cominar Real Estate Investment Trust (“Cominar”),
Dream Office Real Estate Investment Trust (“Dream Office”), and
First Capital Real Estate Investment Trust (“First Capital”).
YEAR IN REVIEW
We went into 2022 building on the progress we made in 2021, with
a continued focus on effective capital allocation, a fundamental
component of our vision and strategy. This included the monetization
of assets in a measured, patient, and opportunistic manner that then
provided the financial resources to continue to reduce debt while
also executing on our value-investing strategies. We made good
progress with our disposition plan during the first half of 2022, but
the second half of the year felt the impact of the significant change
in the overall transaction landscape, due largely to the higher
interest rate environment. This did not stop us from continuing to
focus on what we had planned, based once again on our relentless
commitment to ultimately creating value for our owners through
growing NAV per unit.
In 2022, we sold four Canadian assets for $94.7 million and 20 U.S.
assets for US$311.4 million. These prices are, on balance, in line with
the International Financial Reporting Standards (“IFRS”) fair values
reported prior to the sales. The bulk of these transactions include
dispositions of a few office assets in Canada and the U.S. and the
majority of our industrial assets in the Twin Cities Area. This is in
line with our strategy of unlocking value in our current portfolio and
strategically utilizing that value to pursue investments we believe
have the potential to produce above-average risk-adjusted returns
for our unitholders over the medium-to-long term. I elaborate further
on this point later in this letter.
Below I have summarized our notable investments and capital
allocation initiatives in 2022.
Purchases of Equity Securities
As noted, an integral component of our Business Transformation
Plan is to focus on value investing by identifying real estate
opportunities that are mispriced, misunderstood, or mismanaged.
This includes investing in public securities, where there can
sometimes be a significant disconnect between the value the market
gives a company or REIT and the true underlying NAV per share or
unit that the company or REIT is worth. There are some companies
or REITs that have exceptional properties in strong markets that
we would love to own directly and an indirect investment in these
entities through public shares or units is a different and more cost-
effective way for us to achieve an ownership interest. Best of all, we
get to do so at a discount to what it would ultimately cost us to buy
these properties directly – and often this discount is significant.
SAMIR MANJI
President and
Chief Executive Officer
Letter to Unitholders
Dear Fellow Artis Unitholders:
I have been looking forward to writing this annual letter and the
opportunity to share my thoughts and perspectives on the past
year and, more importantly, on the road ahead for Artis and Artis’s
owners. Suffice it to say that a lot has happened over the past 12
months, not to mention what we have seen unfold recently in 2023,
with a multitude of factors contributing to market pressure and
volatility. 2022 was a challenging year and macroeconomic factors
had a significant impact on our business, in particular our interest
costs and our net asset value (“NAV”) per unit. Today, these same
factors, alongside new ones, are putting significant pressure on
the trading price of almost every public company or REIT, with very
few industries being immune from these effects. None of this has
changed the Board and Management’s resolve and commitment to
focus on things within our control in order to achieve our primary
and fundamental goal of maximizing value for unitholders. This
is paramount to the new vision and strategy for Artis that we
announced on March 10, 2021 - to become a best-in-class real estate
asset management and investment platform focused on growing
NAV per unit and distributions for investors through value investing
in real estate. At that time, we unveiled the Business Transformation
Plan, a detailed strategy which is categorized into three pillars: 1)
strengthening the balance sheet through accretive dispositions,
disciplined unit buybacks and debt reduction; 2) driving organic
growth through development of our assets; and 3) focusing on value
investing in mispriced, misunderstood, or mismanaged assets or
companies, including REITs. In this letter, I will provide an update on
our key accomplishments and challenges in 2022, the status of key
initiatives and areas of focus, and the path that lies ahead.
2 | Artis Real Estate Investment Trust
2022 Annual Report | 3
Letter to Unitholders
In 2022, Artis and a consortium of partners closed on the acquisition
and privatization of Cominar. This was a milestone transaction in
the implementation of our Business Transformation Plan and is an
example of the type of investment that we believe will build long-
term value for our unitholders. The overall thesis for this investment
was very simple and aligns with my earlier comments about intrinsic
value. We saw an opportunity to acquire quality, well-located real
estate for much less than what it is truly worth. In this instance,
the consortium acquired approximately $6.5 billion of real estate
for approximately $5.8 billion – a discount of $700 million. We
mitigated some of our risk by selling $3.6 billion of real estate at
the time of closing, leaving $2.9 billion of assets that cost us $2.2
billion. Since completing the transaction a year ago, we have hired
a new CEO, Mario Morroni, and under his leadership, we are further
de-risking this investment by monetizing additional assets. While
the short-term objective of these additional asset sales has been
debt reduction, we expect to see our equity investment produce
an attractive, above-average return for Artis and our fellow owners
of Cominar.
Together with Sandpiper Group (“Sandpiper”) as joint actors, Artis’s
position in Dream Office increased to 14% in 2022. Dream Office’s
units trade at an approximately 50% discount to their most recently
reported IFRS NAV. Last year, we strategically opted to sell some
of our office properties in suburban Toronto and allocate capital to
Dream Office. Today, Artis directly owns approximately 5.6 million
units of Dream Office. We continue to see value in Dream Office’s
portfolio and, more specifically, in the downtown Toronto office
market, where Dream Office has a high concentration of well-
located assets. In addition, what many investors do not give Dream
Office enough credit or value for, is the 26.6 million units of Dream
Industrial REIT that Dream Office owns and has on its balance
sheet (at December 31, 2022). We believe that the intrinsic value of
Dream Office’s assets is much higher than the value the market is
assigning to it. We also believe that Michael Cooper, both the CEO
and largest unitholder of Dream Office, is committed to maximizing
value for unitholders. Mr. Cooper has a number of options available
to achieve this and we are confident that, as he has done with other
platforms and investments, he will do the same in this instance. This
investment is in line with our value-investing strategy and has the
potential to create meaningful long-term value for our unitholders.
Similar to our approach in the office segment with Dream Office,
on the retail front we opted to begin selling some of our retail
properties, primarily located in secondary markets, and allocating
capital to First Capital. First Capital owns some of the most
attractive, valuable, grocery-anchored real estate in Canada. The
unit price of First Capital was trading at a significant discount due to
various factors and we saw a compelling opportunity from a capital
allocation standpoint. Today, Artis directly owns over 12 million
units of First Capital. Together with Sandpiper as joint actors, Artis
owns approximately 9% of the outstanding units of First Capital.
We look forward to collaborating with the board of First Capital in
2023 as they take steps to unlock and maximize value for all of First
Capital’s unitholders.
Normal Course Issuer Bid
We continue to view our normal course issuer bid (“NCIB”) as one of
the most powerful tools available to enhance value for our owners.
Under the NCIB that expired on December 16, 2021, we purchased
10,160,396 units at a weighted average price of $11.26, representing
the maximum number of common units that could be purchased
under the applicable term. Under the NCIB that was renewed on
December 17, 2021, (and expired December 16, 2022), we purchased
4 | Artis Real Estate Investment Trust
8,778,176 common units at a weighted-average price of $12.39,
again representing the maximum number of common units that can
be purchased under the applicable term. The aggregate over the two
terms, 18,938,572 units, represents 14% of the units outstanding at
the beginning of the period. With our units continuing to trade on
the market significantly below our NAV per unit, utilizing our NCIB is
a low-risk use of capital that increases intrinsic value and benefits
our investors by increasing their effective ownership stake in Artis.
Going forward, we will continue to use our NCIB as a useful tool to
enhance unitholder value.
Development Projects
Our development projects continue to reward our unitholders by
increasing the overall value of our portfolio and providing new,
steady income streams as lease up occurs. Going into 2022, we had
four development projects underway: (i) Park 8Ninety V; (ii) Blaine
35; (iii) Park Lucero East; and (iv) 300 Main. Park 8Ninety V is the
fifth and final phase of an industrial development project located
in the Houston area in Texas. In 2022, we completed construction
of the fifth phase (in which we have a 95% ownership interest).
The entire project totals approximately 1.8 million square feet of
best-in-class, well-located industrial real estate. We also continue
to make excellent progress at Blaine 35, a two-phase industrial
project located in the Minneapolis area in Minnesota. Blaine 35
will total approximately 317,400 square feet and is expected to be
completed in 2023. Park Lucero East is an industrial development
project located in the Phoenix area in Arizona, in which we have a
10% ownership interest and a development management contract in
place. This project will comprise approximately 561,000 square feet
upon completion and is 100% pre-leased. We anticipate exiting this
investment in 2023 and plan to monetize both our equity and carried
interest in the project. Lastly, we continue to make progress on the
development of 300 Main, a 40-storey residential and commercial
project in Winnipeg, Manitoba. In 2022, Earls Kitchen + Bar opened
on the main floor of the building. Pre-leasing interest in the apartment
suites continues to be strong and we look forward to welcoming our
first residential tenants to the property this year.
Core Long-Term Real Estate Holdings
We sold a number of properties last year and, as detailed later in
this letter, expect to sell additional properties in 2023. That said, we
will continue to own, for the long term, a core portfolio of assets
in key markets that we wish to remain invested in. These core
properties are expected to: (i) generate strong income and cash flow
for Artis and its owners; and (ii) produce healthy rental-rate growth
and corresponding bottom-line performance. As a result, from a
capital allocation standpoint, we remain committed to maintaining
a meaningful allocation of our capital to direct, income-producing
real estate that we own.
Balance Sheet and Liquidity
One of our key long-term objectives is to have lower leverage. Due to
the delay in closing certain dispositions in 2022, we ended the year
with overall leverage of 48.5%, slightly above our desired maximum
target of 45.0%. We remain committed to reducing leverage and
are confident we can achieve this as we move through 2023. This
will also improve overall liquidity, which will provide us with greater
financial flexibility going forward.
We ended 2022 with liquidity of $127.2 million. Our plan was to end
the year with a higher amount, but this too was impacted by delayed
closings of certain dispositions. I anticipate this will be addressed
“Our development projects
continue to reward our
unitholders by increasing
the overall value of our
portfolio and providing
new, steady income
streams as lease up occurs.”
300 MAIN
Winnipeg, Manitoba
2022 Annual Report | 5
Letter to Unitholders
Letter to Unitholders
Environmental, Social and Governance
In addition to our focus on sustainability initiatives at the property
level, our Board continues to view Environmental, Social and
Governance initiatives throughout the organization as a high priority
for Artis. As we committed to in our Business Transformation Plan,
our goal is to make ESG a focal point and to establish a company-
wide ESG-minded culture at Artis. As part of our ESG strategy, we are
committed to creating a culture that values and prioritizes diversity,
equity and inclusion. I can say wholeheartedly that, over the last two
years, we have taken our commitment to ESG very seriously. Under
the stewardship of the Governance, Nominating and Compensation
Committee of our Board of Trustees and through execution by our
internal ESG Committee, we have taken significant strides towards
establishing Artis as a leader in ESG best practices. Through
our sustainability initiatives, we are confident we will reduce our
environmental impact, make a positive change in the communities in
which we operate, strengthen our business, and create a culture that
allows us to attract, retain and develop the best talent. There is so
much more to do in this ever-evolving field and there will always be
opportunities for improvement, but we are happy with the progress
we have made thus far and look forward to sharing more information
on our ESG initiatives and progress in our 2022 ESG Report.
FINAL THOUGHTS AND OUR ANNUAL GENERAL MEETING
We accomplished a great deal in 2022 and, as I stated at the outset,
we will continue to focus on executing the Plan introduced in March
2021. At the same time, it is not lost on me, the Board or Management
that Artis’s unit price continues to trade at a significant discount to
its NAV per unit. In simple terms, this is not acceptable. We will
continue to use all near-term levers available to us to improve this.
As we move further into the third year of implementing our new vision
and strategy, if the discount to our trading price relative to NAV
per unit does not close significantly, we will consider every option
available to fulfill our goal of maximizing value for unitholders. We
will not let our unitholders down.
When we announced a new vision and strategy for Artis two years
ago, some people were excited about our unconventional Plan;
however, others were hesitant, if not outright opposed. We knew we
would need to earn people’s trust through successful execution and
results. External factors have made the past year difficult, but history
has demonstrated that there will always be ebbs and flows, periods
of time when the economy provides tail winds for our business and
periods when it creates headwinds. We continue to focus on the big
picture. From our perspective, this means focusing on the value of
our units, not the price of our units. We are confident that with the
execution of our Plan, clear communication and demonstrating a
track record of success, we will be able to narrow the gap between
the value and price of our units, and our owners will be rewarded.
Rest assured, we will do our best to stay true to the commitment we
presented to our owners in March 2021.
Thank you for trusting us with your capital. We look forward to the
rest of 2023 with determination and confidence and are optimistic
about navigating the road that lies ahead.
In closing, I invite all of our stakeholders to join us in person at our
next annual general meeting scheduled for 2:00 pm ET on June 8,
2023, at TMX Market Centre in Toronto, Ontario. I look forward to
seeing you there.
Samir A. Manji
President & Chief Executive Officer
in the first quarter of 2023, as we have made further progress on
the disposition front and on the refinancing side of things. Our goal
is to ensure we have a healthy liquidity position at all times, both
for the sake of being fiscally conservative and to ensure we can be
opportunistic in allocating capital to various opportunities that may
surface and could contribute meaningfully to NAV per unit so as to
ultimately maximize value creation for our unitholders.
THE ROAD AHEAD
It is hard to believe that it has already been two years since the
announcement of our Business Transformation Plan. Artis is not
the company today that it was two years ago. We remain steadfast
in our commitment to our strategy and acknowledge that the path
to get there may wind as we allow ourselves the flexibility to be
opportunistic and to adjust to external market and economic driven
factors that are out of our control. We stated from the get-go that
our strategy would result in less conventional forms of income
and cash flow for Artis, including “lumpy” income from monetizing
investments in public securities over time.
In 2023, we plan to close additional property dispositions; however,
we expect to maintain at least $3.0 billion of income generating
properties. These held assets will have strong growth potential and/
or will be situated in core markets. Maintaining an income-producing
portfolio is key to our strategy, diversifies our investment portfolio,
and generates income (including management fees) that allows us to
sustain our distribution to our owners.
Focus on Key Performance Indicators
Our KPIs are NAV per unit, adjusted funds from operations (“AFFO”)
per unit, AFFO payout ratio, debt to gross book value, and distribution
per unit. Our plan is to use the proceeds from dispositions during
the year to reduce debt and to reallocate some of the capital into
initiatives that we believe will achieve the highest possible return,
ultimately contributing to our most important objective – growing
NAV per unit. Our improved liquidity position will allow us to be
opportunistic and to pursue investments that we believe are in
line with our strategy, including equity securities and real estate
acquisitions or developments.
Subsequent to December 31, 2022, we sold one Canadian office
property for $14.6 million. We also have six U.S. properties under
unconditional contract to sell for US$74.8 million.
Drive Organic Growth
Our organic growth strategy can be categorized into two main
objectives: 1) managing our existing portfolio to achieve optimal
efficiency and improving the portfolio’s income profile by achieving
and extracting the maximum value from each individual asset; and
2) constructing, as an owner or a development manager, state-of-
the-art new generation real estate in strategic locations that are
expected to generate strong development yields.
As I mentioned earlier in this letter, we have achieved healthy leasing
activity across our portfolio. In 2022, 3,690,415 square feet of new
leases and renewals were negotiated and signed. Of this, new leases
accounted for approximately 1,886,547 square feet and renewals
accounted for the remaining 1,803,868 square feet. A significant
portion of the new leases that were signed were for space at new
development projects, which speaks to the continued demand for
new generation industrial product that is well positioned and is
designed with features that cater to the target market.
With respect to lease deals that commenced in the year, there were
982,778 square feet of new leases and 1,456,537 square feet of
renewals that began in 2022. These renewals were negotiated at a
weighted-average rental increase of 4.9% when compared to expiring
rents. This is an excellent rate of growth and we are pleased to
report that the fourth quarter of 2022 marked our eighth consecutive
quarter of positive growth in weighted-average rental rates. The
increase in same property net operating income year over year in
Canadian dollars was 1.8%. Same property net operating income
growth is an important indicator and a metric that we will continue to
monitor closely in the quarters ahead.
In addition to driving growth in our existing portfolio, we also have
a robust pipeline of industrial development projects under way
(as described earlier in this letter) that we expect will be worth
much more upon completion than what it cost us to build. These
developments result in the creation of new net operating income for
our portfolio and should ultimately increase cashflow, funds from
operations and AFFO. The difference between development cost and
market value for each of these projects creates NAV per unit growth
and instant value creation for our unitholders. As we move forward,
we will continue to explore opportunities to add additional projects
to our development pipeline.
Our sustainability initiatives are another important component of our
organic growth strategy. The cost benefits and efficiencies that can be
achieved through implementing environmental best practices often
translate directly to organic growth. Analysis of key environmental
risks (including both physical and transitional climate risks) allows
us to be proactive in addressing these risks and make certain we
are allocating capital, both with respect to our existing portfolio and
our new development projects, to ensure these investments are best
positioned to produce sustainable growth for our unitholders over
the long term. Tenant engagement is important to guaranteeing a
successful business relationship and promoting tenant retention.
In 2022, we conducted our first annual tenant satisfaction survey.
Engaging with our tenants in this way helps us to understand what we
are doing well and where there is room for improvement. The survey
was well received and the results have been reviewed at every level
of Management and are being taken very seriously. We will publish
our Tenant Sustainability Handbook in the coming months, which
provides sustainability suggestions and resources for our tenants
that can be applied to initial fit outs of new space, retrofits and
renovations of existing space, and ongoing day-to-day operations.
This guide will be provided to all current and new tenants and will be
posted on our “ESG Community” website, a website we created to
collaborate with tenants on environmental, social and governance
(“ESG”) matters. We are confident that utilizing this and other
engagement tools will help us to understand the needs of our tenants
so we can all thrive together while protecting our planet. Working
together as partners, we have an exciting opportunity to make an
impactful and positive change.
NCIB
At the end of 2022, we renewed our NCIB from December 19, 2022,
to December 18, 2023. Under the terms of this bid, we can acquire
up to an additional 7,860,942 units during the 12-month period.
As noted earlier, we continue to view our NCIB as a very valuable
tool to enhance unitholder value and will continue using the NCIB
aggressively given our units trade at a significant discount to
our NAV.
6 | Artis Real Estate Investment Trust
2022 Annual Report | 7
220 PORTAGE AVENUE
Winnipeg, Manitoba
Artis at a Glance
Artis at A Glance
Artis Real Estate Investment Trust 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.
$0.60
Per Common Unit
Annual
Distribution
(1)
Artis’s common units trade on the Toronto Stock Exchange under
the symbol AX.UN and the REIT’s preferred units trade under the
symbols AX.PR.E and AX.PR.I. Artis’s common units also trade in
the United States on the OTCQX Best Market (“OTCQX”) under the
symbol ARESF.
Artis owns a portfolio of industrial, office and retail properties
in Canada and the United States. At December 31, 2022, the
REIT’s portfolio comprised 134 commercial properties totalling
approximately 15.5 million square feet of gross leasable area.
I34
Total Number
I5.5
Million Sq.Ft.
Properties
Gross
Leasable area
(1) Excluding the special distribution declared in December 2022.
Canada
40.0%
net
operating
income by
country
U.S.
60.0%
U.S.
56.9%
Canada
43.1%
gross
leasable
area by
country
key financial metrics
As at December 31, 2022 or for the year ended December 31, 2022
NAV PER UNIT
$I7.38
REVENUE
$372.5M
TOTAL DEBT TO GBV
48.5%
TOTAL ASSETS
$4.6B
AFFO PER UNIT
$0.95
AFFO PAYOUT RATIO
63.2%
FFO PER UNIT
$I.39
FFO PAYOUT RATIO
43.2%
8 | Artis Real Estate Investment Trust
2022 Annual Report | 9
330 MAIN
Winnipeg, Manitoba
Vision and Strategy
Vision and Strategy
VISION
Artis’s vision is 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.
BUSINESS TRANSFORMATION PLAN
In March 2021, Artis 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 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.
As part of the Business Transformation Plan, Artis will be 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.
The Business Transformation Plan includes the following key
elements:
1. Strengthening the Balance Sheet
The first element of the Business Transformation Plan is to
strengthen the balance sheet through accretive dispositions,
unit repurchases and debt reduction.
2. Driving Organic Growth
The second element of the Business Transformation Plan is
driving organic growth by creating value for Artis’s unitholders
through
increasing
occupancy and in-place rents, and the completion of new
development projects.
identifying operational efficiencies,
3. Focusing on Value Investing
The third element of the Business Transformation Plan is to focus
on value investing. This involves redeploying capital into new
investments including value-added assets, undervalued publicly
traded real estate securities and any other real estate investment
opportunities. In particular, Artis is focused on identifying
investments that are undervalued with potential to produce
above average risk-adjusted returns over the medium-to-long
term. Artis will seek to 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. The REIT’s near-term focus continues to be
on publicly listed Canadian real estate entities.
Artis is committed to conducting its business in a sustainable
manner, with a focus on continuous and measurable improvement
and transparency in all areas of its environmental, social and
governance (“ESG”) performance.
As part of Artis’s vision, 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 REIT 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. Artis strives to be a sustainability leader,
and to demonstrate a high standard of ESG consciousness and best
practices through its commitment to ongoing review, transparency
and performance. For further information on Artis’s ESG practices,
please see the Environmental, Social and Governance section of this
Annual Report.
“Artis is focused on
identifying investments
that are undervalued
with potential to produce
above average risk-
adjusted returns over the
medium-to-long term.”
10 | Artis Real Estate Investment Trust
2022 Annual Report | 11
Portfolio and Operational Performance
Portfolio and Operational Performance
Portfolio and Operational Performance
Portfolio map
On December 31, 2022, Artis’s portfolio comprised 134 properties
totalling 15.5 million square feet of gross leasable area. The REIT’s
portfolio includes industrial, office and retail properties located
across five provinces and five states in Canada and the United
States (“U.S.”). At December 31, 2022, Canadian assets account
for 43.1% of the portfolio by gross leasable area, while 56.9% of the
portfolio by gross leasable area is located in the U.S. By asset class,
Artis’s industrial portfolio accounts for 43.5% of the REIT’s gross
leasable area, while office assets represent 42.6% and retail assets
represent 13.9%.
The REIT also has ownership interest in ten investment properties,
one
investment property under development, one parcel of
development land and properties acquired as part of the Cominar
transaction. These have been excluded from financial and operating
metrics throughout this Annual Report, unless otherwise noted.
In 2022, Artis’s portfolio continued to demonstrate resiliency,
maintaining a healthy occupancy
level above 90% (including
commitments) throughout the year. Across Artis’s six offices located
in Winnipeg, Calgary, Edmonton, Phoenix, Madison and Minneapolis,
approximately 2.4 million square feet of
lease transactions
(including new leases and renewals) commenced during the year.
The weighted-average increase in rental rates achieved on these
renewals was 4.9%. Looking ahead to 2023, a manageable 14.6%
of Artis’s gross leasable area expires, 46.9% of which was renewed
or committed to new leases at the end of 2022. Artis’s 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.
Artis has 1,106 tenant leases in its portfolio with a weighted-average
term to maturity of 5.4 years. The properties have a diverse tenant
base, with the top 10 tenants representing 20.3% of the REIT’s total
gross revenue (in Canadian and US dollars) and a weighted-average
term to maturity of 8.5 years. Artis’s rent collections remained
strong throughout 2022. Artis collected 99.1% of rent charges for
the year ended December 31, 2022.
Artis continues to create value for unitholders through development
projects, which present a compelling opportunity to build new
generation real estate at building costs that are well below the REIT’s
estimated fair value upon completion. In 2022, Artis completed
construction of the fifth and final phase of Park 8Ninety (in which
Artis has a 95% ownership interest) located in the Greater Houston
Area, Texas. This final phase comprises approximately 675,000
square feet of additional industrial space to add to Artis’s existing
1,120,414 square feet in the first four phases. Artis is also making
excellent progress on Park Lucero East, an industrial development
project in the Greater Phoenix Area, Arizona, that the REIT has a
10% ownership in as well as a development management contract
in place. In 2021, Artis also acquired two parcels of industrial
development land in the Twin Cities Area, Minnesota, and began
construction on the first of two phases. This project, Blaine 35, is
expected to total 317,400 square feet upon completion. Construction
of the first phase was complete during the second quarter of 2022
and construction of the second phase is currently underway and
expected to be completed in 2023. The REIT also has a commercial
and residential development project under construction, 300 Main.
This project is a 580,000 square foot building located in Winnipeg,
Manitoba. 300 Main is connected to 330 Main, a state-of-the-
Portfolio
By Gross Leasable Area
Wisconsin
11.4%
Texas
10.8%
Minnesota
20.6%
Colorado
2.8%
Arizona
11.3%
by state/
province
Retail
13.9%
Office
42.6%
Alberta
12.6%
British Columbia
2.1%
Manitoba
24.2%
Ontario
0.6%
Saskatchewan
3.6%
by Asset
class
Industrial
43.5%
BRITISH
COLUMBIA
3 properties
0.3 million sq.ft.
ALBERTA
32 properties
1.9 million sq.ft.
SASK ATCHEWAN
6 properties
0.6 million sq.ft.
MANITOBA
42 properties
3.7 million sq.ft.
ONTARIO
1 property
0.1 million sq.ft.
ARIZONA
11 properties
1.8 million sq.ft.
COLORADO
2 properties
0.4 million sq.ft.
MINNESOTA
16 properties
3.2 million sq.ft.
WISCONSIN
16 properties
1.8 million sq.ft.
TEXAS
5 properties
1.7 million sq.ft.
12 | Artis Real Estate Investment Trust
2022 Annual Report | 13
Top 10 Tenants
Tenant
% of Total
Gross Revenue (1)
Weighted-Average
Lease Term in Years
BELL MTS BUILDING I & II
Winnipeg, Manitoba
Portfolio and Operational Performance
art multi-tenant retail property constructed in 2020. 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. During the first quarter of 2022, Earls Kitchen
& Bar, occupying approximately 7,400 square feet, moved into their
space on the main floor of the building. Pre-leasing of the first 20
floors of the 40-storey residential apartments is currently underway.
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. 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 to reduce debt and the
flexibility to execute Artis’s value-investing strategies. Core long-
term real estate holdings are expected to: (i) generate strong income
and cash flow for Artis and its owners, (ii) produce healthy rental
rate growth and corresponding bottom line performance, and (iii)
continue to perform well. With respect to capital allocation, Artis is
committed to maintaining a meaningful allocation of its capital to
direct ownership of income-producing real estate.
In connection with the Business Transformation Plan, and in
addition to the 41 properties and a portion of a retail property sold
in 2021, Artis sold 24 properties totalling 3,175,024 square feet of
gross leasable area for aggregate sale prices of $94.7 million and
US$311.4 million in 2022. These dispositions included the sale of
five office properties and 19 industrial properties in Canada and
the U.S. Subsequent to December 31, 2022, Artis sold one office
property in Saskatoon. Artis also has a portfolio of six industrial
properties located in the Twin Cities Area under an unconditional
sale agreement.
GOVERNMENT
3.9%
2.5%
2.4%
2.2%
2.2%
1.6%
1.5%
1.4%
1.3%
1.3%
7.9
6.8
0.2 (2)
4.0
11.8
13.6
6.0
4.0
8.9
6.0
Industrial
Office
Retail
Total Portfolio
lease expiries by year
By Gross Leasable Area
(1) In Canadian and US dollars.
(2) AT&T vacated their premises on February 28, 2023.
50%
40%
30%
20%
10%
2023
2024
2025
2026
2027+
14 | Artis Real Estate Investment Trust
2022 Annual Report | 15
Developments
Developments
PARK 8NINETY
Greater Houston Area, Texas
Park 8Ninety V is the fifth and final phase of an industrial development
project located in the Greater Houston Area, Texas. This is a multi-
phase development that totals over 1.8 million square feet of best-
in-class industrial real estate with clear ceiling heights up to 36 feet,
rear-load, front-load and cross-dock options, and is strategically
located with access to two major thorough fares with excellent
visibility. The first four phases are 97% leased while the fifth phase,
which was completed in the first quarter of 2022, is 35% leased with
strong interest from prospective tenants in the remainder of the
space, providing further opportunity for income growth once this
space is leased. This development project is an excellent example
of the value that can be created for Artis’s unitholders through new
construction. Artis has a 95% ownership interest in Park 8Ninety V.
Park 8Ninety is a five-phase industrial
development
that was
project
constructed between 2017 and 2022.
Construction of the fifth and final
phase was completed
in the first
quarter of 2022.
D
E
T
E
L
P
M
O
C
16 | Artis Real Estate Investment Trust
2022 Annual Report | 17
Developments
T
N
E
R
R
U
C
I was
Construction of Blaine 35
completed
in the second quarter
of 2022 and was 73% leased upon
completion, while Blaine 35 II is 50%
pre-leased and is expected to be
completed in 2023. The entire project
will comprise approximately 317,400
square feet upon completion.
BLAINE 35
Twin Cities Area, Minnesota
Blaine 35 I is the first of two phases of an industrial development in
the Twin Cities Area, Minnesota. This location provides prominent
frontage on Interstate-35W and clear ceiling heights up to 32 feet. In
addition to offering tenants all of the amenities that come with best-
in-class, brand new industrial space, this development incorporates
distinct architectural design, lush landscaping and sustainable
wetlands. Throughout the planning stages of Blaine 35, Artis’s team
worked closely with the city and local community representatives
to ensure sustainability was considered in the long-term vision
for the project. The site incorporates improved infiltration and
evapotranspiration and is designed to support the installation of
electric vehicle charging stations and allow for the future extension
of the Regional Bicycle Transportation Network along 35W
Service Drive.
18 | Artis Real Estate Investment Trust
2022 Annual Report | 19
Developments
300 MAIN
Winnipeg, Manitoba
300 Main is a 40-storey residential apartment building located
at the busiest and most prominent intersections of downtown
Winnipeg, Portage Avenue and Main Street. It provides access to the
underground and skywalk system that connects the core downtown
buildings to each other, including the Canada Life Centre (home
of the Winnipeg Jets). It is also connected to the Winnipeg Square
retail concourse and Winnipeg Square Parkade, providing tenants
with access to heated underground parking. Further, it will offer a
second floor terrace with barbeques, pizza ovens, fireplaces and a
pet playground. The 40th floor lounge will feature a theatre space, a
games room and two outdoor patios. 300 Main offers the Winnipeg
market a convenient and upscale pet-friendly option to live, work and
play downtown.
T
N
E
R
R
U
C
In 2022, Earls Kitchen + Bar opened on
the main floor at 300 Main. Pre-leasing
of the first 20 floors is underway and
Artis
looks forward to welcoming
residential tenants to the property
in 2023. 300 Main is connected to
330 Main, a new retail development
constructed by Artis in 2020.
20 | Artis Real Estate Investment Trust
2022 Annual Report | 21
RENDERING OF 300 MAIN
Developments
T
N
E
R
R
U
C
Artis began construction of Park
Lucero East in 2021 and expects to
complete construction of this project
in 2023. This project is adjacent to
another
development
project owned by Artis, Park Lucero,
that was constructed between 2015
and 2018.
four-phase
PARK LUCERO EAST
Greater Phoenix Area, Arizona
In 2021, Artis entered into an arangement with Nuveen Real Estate to
develop Park Lucero East, an industrial development project in the
Greater Phoenix Area, Arizona. Artis has a 10% ownership interest
in Park Lucero East and a development management contract. The
site is located along the South Loop 202 Freeway with 202 Freeway
and Germann Road frontage. Artis is familiar with this location,
as it is adjacent to Park Lucero, a 582,000 square foot industrial
development that Artis completed in 2018 and that is 100% leased.
This area has proven to generate strong demand and attract high-
quality tenants. Given Artis’s track record of success at Park
Lucero, this project presented an excellent opportunity to generate
development income plus additional ownership in an area in which
the REIT has strong confidence. Park Lucero East will comprise
three Class A industrial buildings totalling 561,000 square feet upon
completion and is 100% pre-leased.
22 | Artis Real Estate Investment Trust
2022 Annual Report | 23
Balance Sheet and Financial Performance
Balance Sheet and Financial Performance
Balance Sheet and Financial Performance
selected financial information
to interest and other income and an increase in distributions from
equity securities. 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 NCIB. In 2022, FFO
was $164.8 million, compared to $174.3 million in 2021. On a per
unit basis, FFO was $1.39, compared to $1.34 year-over-year. AFFO
was $112.6 million in 2022, compared to $124.5 million in 2021. This
translates to a per unit AFFO of $0.95 in 2022, compared to $0.96 in
2021. The REIT reported conservative FFO and AFFO payout ratios of
43.2% and 63.2%, respectively, for 2022.
Artis continues to maintain its investment grade credit rating from
DBRS. This rating is highly respected in the real estate industry,
where only select real estate investment trusts and real estate
operating companies have been awarded an investment grade
credit rating. As at December 31, 2022, DBRS assigned a rating of
BBB(low) to the the REIT’s senior unsecured debentures and Pfd-3
(low) to Artis’s Preferred Units, both with stable trends.
Mortgages
19.5%
total
capitalization
Senior
Unsecured
Debentures
10.0%
Credit Facilities
20.3%
Industrial
31.7%
net
operating
income
Unitholders’
Equity
50.2%
Retail
20.2%
Office
48.1%
A critical component of Artis’s Business Transformation Plan is the
strengthening of the REIT’s balance sheet to provide significant
liquidity and flexibility to capitalize on opportunities that align
with Artis’s value-investing strategy. The REIT has committed to
maintaining low leverage and debt metrics within the investment
grade credit rating parameters defined by DBRS. In 2022, Artis sold
24 properties for an aggregate sale price of $514.1 million. These
dispositions include a portfolio of industrial properties located in the
Twin Cities Area, Minnesota.
remained active since
the
The REIT’s NCIB program has
announcement of the Business Transformation Plan. In 2022,
Artis utilized the NCIB to purchase 8,156,276 common units for
an aggregate market price of $100.6 million and 47,300 Series A,
94,400 Series E and 68,800 Series I preferred units for an aggregate
market price of $5.1 million. Also during 2022, Artis participated in
an investor group to acquire Cominar. The REIT’s contribution to this
transaction was $112.0 million to acquire 32.64% of an entity formed
to acquire the outstanding units of Cominar and $100.0 million of
junior preferred units that carry a rate of return of 18.0% per annum.
As at December 31, 2022, Artis invested in equity securities with an
aggregate fair value of $316.8 million.
At year end, Artis’s liquidity included $29.2 million of cash on hand
and $98.0 million available to be drawn on the REIT’s unsecured
revolving credit facilities. Additionally, Artis’s pool of unencumbered
assets totalled 91 properties, one development project and three
parcels of development land and representing a fair value of
$2.0 billion.
During 2022, Artis issued Series E senior unsecured debentures for
gross proceeds of $200.0 million for a three-year term and renewed
the first tranche of the revolving credit facilities in the amount of
$400.0 million for a two-year term.
Artis’s primary objective is to create value for its investors by
growing NAV per unit and distributions. In accordance with this
objective, NAV is a critical area of focus and an important key
performance indicator for Artis. In 2022, Artis’s NAV increased to
$17.38 from $17.37 year over year and from $15.03 prior to the onset
of the Business Transformation Plan.
In December 2022, Artis declared a special distribution of $0.16
per common unit, with $0.08 per unit payable in cash and $0.08 per
unit payable in units. The special distribution was principally made
to distribute to unitholders a portion of the capital gain realized by
the REIT from transactions completed during 2022. Immediately
following the issuance of units pursuant to the special distribution,
the outstanding units of Artis were consolidated such that each
unitholder held, after the consolidation, the same number of units
as before the special distribution. The amount of the special
distribution payable in units increased the adjusted cost base of
unitholders’ consolidated units.
In the real estate industry, other common key performance indicators
include funds from operations (“FFO”) and adjusted funds from
operations (“AFFO”). FFO and AFFO in 2022 were primarily impacted
by dispositions completed in 2021 and 2022, year-over-year increase
in interest expense, partially offset by a higher US dollar to Canadian
dollar average exchange rate in 2022 compared to 2021, an increase
24 | Artis Real Estate Investment Trust
000’S, EXCEPT PER UNIT AMOUNTS (YEAR ENDED DEC 31)
Total Revenue
Net Operating Income
Net (Loss) Income
Total Comprehensive Income (Loss)
Basic (Loss) Income per Common Unit
Diluted (Loss) Income per Common Unit
Distributions per Unit
Common Units (1)
Preferred Units—Series A
Preferred Units—Series E
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)
Same Property NOI Growth (Decline) (2)
Adjusted EBITDA Interest Coverage Ratio (2)
2022
$ 372,512
209,980
(5,294)
105,537
(0.18)
(0.19)
$ 0.76
1.06
1.37
1.50
2021
$ 419,499
237,785
389,175
387,702
2.87
2.86
$ 2.98
1.42
1.37
1.50
2020
$ 458,917
269,275
21,543
(6,274)
0.03
0.02
$ 0.54
1.42
1.37
1.50
$ 164,791
$ 174,343
$ 192,411
1.39
43.2%
1.34
44.0%
1.41
38.3%
$ 112,552
$ 124,476
$ 139,552
0.95
63.2%
1.8%
2.98
0.96
61.5%
(4.1)%
3.80
1.02
52.9%
(1.7)%
3.48
(1) Includes the special distribution declared in December 2021 and December 2022.
(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.
(3) FFO Payout Ratio and AFFO Payout Ratio are calculated excluding the special distribution declared in December 2021 and December 2022.
000’S, EXCEPT PER UNIT AMOUNTS (AS AT DEC 31)
2022
2021
2020
Total Assets
$ 4,553,913
$ 4,576,024
$ 4,859,841
Total Non-Current Financial Liabilities
974,063
1,166,123
1,648,305
NAV per Unit (1)
Secured Mortgages and Loans to GBV (1)
Total Debt to GBV (1)
Unencumbered Assets (1)
17.38
18.9%
48.5%
17.37
23.7%
42.9%
15.03
26.2%
49.3%
$ 2,034,409
$ 1,902,748
$ 1,901,073
(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.
2022 Annual Report | 25
PARK 8NINETY II
Greater Houston Area, Texas
2022 Annual Report
Capital Allocation
Capital Allocation
Effective capital allocation is a fundamental component of Artis’s
vision and strategy. As part of the announcement of the Business
Transformation Plan, Artis committed to monetizing a portion of
its portfolio and reallocating that capital to improving the REIT’s
balance sheet, investing in developments and providing the flexibility
to pursue value investing opportunities.
During the year ended December 31, 2022, Artis sold 24 properties,
including four Canadian assets sold for $94.7 million and 20 U.S.
assets sold for US$311.4 million. Artis used the proceeds from
these sales primarily to buy back units under the REIT’s NCIB (as
described in the Balance Sheet and Financial Performance section),
invest in development projects and core hard real estate assets
(as described in Portfolio and Operational Performance section),
and to purchase equity securities. Also in 2022, Artis acquired
the remaining 5% interest in Park 8Ninety II, an industrial property
located in the Greater Houston Area, Texas, for total consideration of
US$2.5 million.
Since the announcement of the Business Transformation Plan in
2021, Artis has been actively utilizing its NCIB. Under the NCIB that
expired on December 16, 2021, Artis purchased 10,160,396 units at
a weighted-average price of $11.26, and under the NCIB that expired
on December 16, 2022, Artis purchased 8,778,176 common units
at a weighted-average price of $12.39, representing the maximum
number of common units allowed under each applicable term.
The REIT renewed the NCIB effective December 19, 2022 and as
at December 31, 2022 had purchased 387,068 units at a weighted-
average price of $8.94 under the term. The units purchased under the
NCIB in both 2021 and 2022 were purchased at a significant discount
to NAV per unit of $17.38 at December 31, 2022, and NAV per unit of
$17.37 at December 31, 2021. Artis continues to view the NCIB as a
powerful tool for enhancing value for unitholders and will continue to
use it in circumstances where the REIT’s units trade at a significant
discount to NAV.
dispositions
In 2022, Artis completed the redemption of the outstanding Series A
preferred units with a face value of $81.2 million.
With respect to public real estate entities, Artis’s Business
Transformation Plan includes seeking to acquire meaningful and
influential ownership positions in undervalued entities, with a near-
term focus on publicly listed Canadian real estate entities. Artis
will seek to 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. As
part of this strategy, 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.
During 2021 and 2022, compelling opportunities were identified in
the public markets. During the first quarter of 2022, Artis participated
in an investor group to acquire Cominar. The REIT’s contribution to
this transaction was $112.0 million to acquire approximately 32.64%
of an entity formed to acquire the outstanding units of Cominar, and
$100.0 million of junior preferred units that carry a rate of return of
18.0% per annum.
At December 31, 2022, Artis invested in equity securities with an
aggregate fair value of $316.8 million. This includes equity securities
of Dream Office, where, together with its joint actors, Artis acquired
a 14% ownership position. This also includes equity securities
of First Capital where, together with its joint actors, Artis owns
approximately 9% of the outstanding units.
Artis has strong conviction in its strategy and in these investments.
They align with Artis’s Business Transformation Plan and are
reflective of the attractive opportunities that exist within the
public markets.
DISPOSITION DATE
ASSET CLASS
PROPERTY NAME
LOCATION
January 20
March 10
June 24
June 30
September 19
November 4
November 15
Office
Industrial
Office
Industrial
Office
Industrial
Office
Cancross Office Portfolio (1)
Greater Toronto Area, Ontario
2150-2180 Dunwin Drive
Greater Toronto Area, Ontario
Meadowvale Office
Greater Toronto Area, Ontario
Rocky Mountain Business Center
Greater Denver Area, Colorado
New Brighton Office Center
Twin Cities Area, Minnesota
Minnesota Industrial Portfolio I (2)
Twin Cities Area, Minnesota
Hartford Corporate Plaza
New Hartford, New York
(1) Cancross Office Portfolio comprises two office properties.
(2) Minnesota Industrial Portfolio I comprises 17 industrial properties.
26 | Artis Real Estate Investment Trust
2022 Annual Report | 27
Environmental, Social and Governance
Environmental, Social and Governance
As part of Artis’s vision, 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,
Artis is committed to making ESG a focal point and to establishing a
company-wide ESG-minded culture.
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 work life balance, among other things.
The following outlines Artis’s commitment to ESG best practices and
the progress the REIT has made in each of these areas.
ENVIRONMENTAL
Sustainability is a priority across the organization. Through the
implementation and management of internal policies and goals,
Artis is committed to minimizing its impact on the environment
by reducing excess waste generation and seeking to use energy
efficient and environmentally friendly systems, fixtures and products
in its buildings. Many of Artis’s continuous improvement initiatives
focus on sustainability and energy reduction strategies to ensure
buildings are operating at their peak efficiency. As buildings are
upgraded and equipment is replaced, it is done with technology that
promotes energy efficiency and best practices.
Artis’s
summarized below:
commitment
to environmental best practices
is
• Prioritize sustainable practices—Practice dedication and
commitment to a high standard of environmental responsibility
as it relates to the acquisition of assets, development and
redevelopment projects and the ongoing management of the
portfolio;
• Conserve energy and water and reduce waste—Measure, monitor
and continuously make efficiency improvements while working
with tenants to improve energy, water and waste conservation in
a way that will reduce the building’s environmental footprint over
the long term;
• Promote comfort and safety—Implement systems to ensure the
comfort and safety of tenants and visitors of our properties and
provide a clean environment and attentive building management at
all properties, while maintaining engagement and communication
to ensure this is being achieved;
• Be transparent—Establish objectives and measure results to
provide clear and transparent communication to all stakeholders;
and
• Strive to improve—Perform continuous review and analysis of
building efficiency to assess and adopt best practices, policies
and procedures while seeking opportunities to modernize building
systems to achieve optimal efficiency.
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.
With a total of 172 employees, (of which 137 are based in Canada and
35 are based in the U.S.), the REIT depends on a diverse, productive
and engaged workforce and culture to achieve
its business
objectives. The REIT strives to create an environment that promotes
sustainability at all of its offices and properties.
Artis’s commitment to social best practices is summarized below:
• Foster a positive work environment—Create a culture that values
diversity (in all aspects), equity and inclusion and promotes
respect and equal opportunities for all;
• Prioritize safety and well-being—Provide the tools and resources
and strive to ensure the well-being and safety of all employees,
tenants and visitors of our properties;
• Active community involvement—Support charitable organizations
and initiatives and be an active member of, with a goal of having a
lasting positive impact on, the communities in which we operate;
and
• Encourage engagement—To create and foster an environment that
values and encourages engagement with all stakeholders.
GOVERNANCE
Artis’s 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.
Transparency, communication and accessibility are the foundation
of Artis’s stakeholder engagement strategy. This
includes a
commitment
relationships with
employees, the investment community, tenants, vendors and other
partners and stakeholders.
to continuously strengthen
Strong and effective governance practices are part of Artis’s
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, the Board established a Board Diversity and Renewal Policy
communicating its commitment to diversity targets on the Board. At
December 31, 2022, the Board exceeded its diversity targets, with
57% female representation and 29% Black, Indigenous and People of
Colour representation.
2022 Annual Report | 29
TWO MARKETPOINTE
Twin Cities Area, Minnesota
28 | Artis Real Estate Investment Trust
Environmental, Social and Governance
Artis’s commitment to governance best practices is summarized
below:
•
• Become a leader—Strive to establish Artis as a leader in
an
ESG Community website
launched
collaboration and sharing of ESG
with tenants;
to
facilitate
ideas
insights and
governance best practices;
• conducted an
inaugural annual
tenant engagement and
• Continuous improvement—Continuously seek opportunities for
improvement in all areas of governance and establish measurable
performance targets wherever possible;
• Fulsome Disclosure—To be transparent in disclosure, providing
regular comprehensive updates on performance, achievements
and goals, and providing stakeholders with disclosure that is
accurate and accessible; and
• ESG Excellence—To ensure ESG priorities are considered in
strategic decision making and goal setting.
Since the announcement of the Business Transformation Plan and
the REIT’s commitment to ESG best practices in March 2021, Artis’s
ESG program has undergone a significant transformation. During
this time, Artis has accomplished the following:
• created an internal ESG Committee, comprised of senior level
employees across all offices who meet monthly to discuss,
implement and collaborate on ESG best practices;
• added Yardi Pulse
tools
to complement
and provide sustainability-focused, property-level reporting
functionality;
reporting
its
satisfaction survey;
• conducted an
inaugural annual employee engagement and
diversity, equity and inclusion survey;
• provided leadership training to all employees;
• created
an
to
oversee the REIT’s charitable giving and community involvement
initiatives;
philanthropy
committee
internal
• reviewed and improved all Board mandates, charters, policies and
position descriptions, including incorporating enhancements to
include applicable responsibility for ESG matters in the mandate
and all charters; and
• adopted a comprehensive pay-for-performance structure related
to short-term incentive compensation and long-term incentive
compensation for the Chief Executive Officer, Chief Financial
Officer and Chief Operating Officer.
These are only a few examples of the immense work that has
gone in to elevating Artis’s ESG program and fulfilling the REIT’s
commitment to unitholders. Artis looks forward to publishing it’s
2022 ESG Report in the coming months, providing a comprehensive
update on the progress that has been made over the last year.
• commenced a portfolio-wide, property-by-property climate risk
assessment utilizing Moody’s Climate on Demand tool;
•
incorporated reporting principles of the Sustainability Accounting
Standards Board (“SASB”) Real Estate Sustainability Accounting
Standard;
• submitted to GRESB for the first time since 2019;
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. Artis values energy
certification and considers it an asset, both with respect to the REIT’s
existing portfolio and when acquiring new properties.
At December 31, 2022, the REIT had nine properties with a Leadership
in Energy and Environmental Design (“LEED”) certification, five
properties with a Building Owners and Managers Association
(“BOMA”) Building Environmental Standards (“BEST”) certification
and 17 properties with an Energy Star certification.
The three major property certifications Artis pursues are:
LEED or Leadership in Energy & Environmental Design is a green
building tool that addresses the entire building lifecycle, recognizing
best-in-class building strategies.
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.
Energy Star is a voluntary U.S. Environmental Protection Agency (EPA)
program that certifies buildings for superior energy performance.
30 | Artis Real Estate Investment Trust
STINSON OFFICE PARK
Minneapolis, Minnesota
2022 Annual Report | 31
Outlook
Outlook
Looking ahead, Artis continues to see strong value in the industrial,
office, and retail asset classes. As part of Artis’s strategy, the REIT
continues to evaluate the sale of a portion of its industrial, office
and retail portfolios in an opportunistic and disciplined manner,
with the goal of maximizing value on a tax-efficient basis. The
macro economic environment, and more specifically higher interest
rates, affected the transaction landscape in the second half of 2022
and Artis expects that will continue into 2023. Nonetheless, Artis
expects to complete more property dispositions in 2023 and has
confidence that it will be able to successfully execute its disposition
strategy in the coming year.
In the meantime, Management is closely monitoring interest rate
trends and forecasts and is in continuous discussions with lenders
in order to manage its debt maturities schedule. While the rising
interest rate environment has impacted the public markets and
has led to inefficiencies in the public real estate sector, it has also
presented compelling opportunities that are in line with the REIT’s
value investing strategy. Artis continues to diligently consider all
available options and opportunities and, in doing so, is taking into
consideration the current environment and how to ensure the best
interests of unitholders is achieved.
The REIT continues to believe that the Business Transformation
Plan is a strategy that will generate long term NAV per unit growth
and create value for Artis’s unitholders. Going forward, Artis will
continue to focus on improving its balance sheet while deploying
some of the proceeds from disposition activity into new real estate
investments, including undervalued publicly traded real estate
securities and accretive real estate acquisitions or developments.
Since the announcement of the Business Transformation Plan on
March 10, 2021, the REIT has made significant progress towards
its implementation, and continues to have strong conviction in the
REIT’s vision, strategy and the path forward.
corporate information
Board of Trustees
Board of Trustees
Heather-Anne Irwin
Samir Manji
Ben Rodney
Mike Shaikh
Member of the Governance,
Nominating and
Compensation Committee
Trustee, President and
Chief Executive Officer
Chair of the Board and
Member of the Investment
Committee (ex-officio)
Chair of the Audit
Committee and Member of
the Investment Committee
Head Office:
220 Portage Avenue, Suite 600, Winnipeg, Manitoba
Investor Inquiries:
investorinquiries@artisreit.com, +1 800 941 4751
Transfer Agent: Odyssey Trust Company
Indenture Trustee: BNY Trust Company of Canada
Auditors: Deloitte LLP
Legal Counsel: Norton Rose Fulbright Canada LLP
executive management
Toronto Stock Exchange Listings:
Trust Units
AX.UN
Preferred Unit Series E AX.PR.E $0.3420 per unit per quarter
$0.3750 per unit per quarter
Preferred Unit Series I
$0.05 per trust unit per month
AX.PR.I
Annual General Meeting:
June 8, 2023, at 2:00 pm ET
TMX Market Centre, 120 Adelaide St. W., Toronto, Ontario
Aida Tammer
Lis Wigmore
Lauren Zucker
Member of the Governance,
Nominating and
Compensation Committee
and Member of the Audit
Committee
Chair of the Governance,
Nominating and
Compensation Committee
and Member of the
Investment Committee
Chair of the Investment
Committee and Member of
the Audit Committee
Samir Manji
Jaclyn Koenig
Kim Riley
President and
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Artis’s Trustees are proven business leaders with a significant breadth
of experience in the areas of real estate, corporate governance,
finance, accounting, strategic planning and risk management. They
also collectively have extensive public company board experience.
Artis’s Board of Trustees believes that sound governance practices
are essential to the long-term interests of Artis and the enhancement
of value for all of its unitholders.
The Board of Trustees recognizes that proper and effective corporate
governance is a high priority for Artis’s stakeholders. The Board of
Trustees has three committees which, at December 31, 2022, were
structured as follows: the Audit Committee (chaired by Mike Shaikh),
the Governance, Nominating and Compensation Committee (chaired
by Lis Wigmore) and the Investment Committee (chaired by Lauren
Zucker). All Committee members are independent of management.
Trustees are elected annually by majority vote of the holders of Trust
Units entitled to vote thereon. Trustees elected at an annual meeting
will be elected for a term expiring at the subsequent annual meeting
and will be eligible for re-election. The Trustees have the power
to increase the number of Trustees (to a maximum of 10) and to
appoint additional Trustees to serve as Trustees until the next annual
meeting of holders of Trust Units entitled to vote at such meeting.
The Declaration of Trust provides that the investment policies and
operations of Artis are the responsibility of its Trustees, of which as
at December 31, 2022, there were seven.
Additional
information about Artis’s Board, Trustees and
Committees, as well as key governance documents such as the
Code of Conduct, Whistleblower Policy, Board Mandate, Declaration
of Trust and Committee Charters can be downloaded from Artis’s
website at www.artisreit.com/governance-documents/.
32 | Artis Real Estate Investment Trust
2022 Annual Report | 33
management’s discussion & analysis
2022 annual
Years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except unit and per unit amounts)
TSX: AX.UN AX.PR.E AX.PR.I
OTCQX: ARESF
34 | Artis Real Estate Investment Trust
2022 Annual Report | 35
Management’s Discussion & Analysis 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 consolidation financial statements for the years ended December 31, 2022 and 2021, 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 February 28, 2023. 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's 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's 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's plans to optimize the value
and performance of its assets, Artis's goals to grow net asset value ("NAV") per unit and distributions, efficiencies and cost savings, the tax treatment
of Artis, Artis's 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.
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's
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's actual results to materially differ from current
expectations, refer to the section entitled “Risk Factors” of Artis's Annual Information Form for the year ended December 31, 2022 as well as Artis's
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"), 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's 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
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
Excess (shortfall) of cash flow from operations over distributions declared, excess (shortfall) of net
income over distributions declared
Same Property NOI Analysis
FFO & AFFO
Other Financial Measures
Other Financial Measures
Other Financial Measures
Other Financial Measures
Liabilities
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.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 February 28, 2023, there were 115,400,726 common units, 8,469,450 preferred units, 423,833 restricted units and 226,531 deferred units of Artis
outstanding (refer to the Outstanding Unit Data section of this MD&A for further details).
The Fourth Amended and Restated Unitholder Rights Plan Agreement dated September 24, 2020 between Artis and TSX Trust Company (formerly AST
Trust Company) (the “Rights Plan”) was terminated on June 15, 2022. The rescission of the Rights Plan pursuant to section 5.4(c) of the Rights Plan, as
described in Artis's management information circular dated May 2, 2022, was approved by a majority of the Independent Unitholders (as defined in the
Rights Plan) at the annual meeting of the holders of common units of Artis, held on June 9, 2022.
VISION
Artis's vision is 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.
BUSINESS TRANSFORMATION PLAN
In March 2021, Artis 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 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.
As part of the Business Transformation Plan, Artis will be 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.
The Business Transformation Plan includes several key elements, as outlined below.
Strengthening the Balance Sheet
The first element of the Business Transformation Plan is to strengthen the balance sheet through accretive dispositions, unit repurchases and debt
reduction.
Since the announcement of the Business Transformation Plan, Artis has been unlocking value through the monetization of certain assets, including
most of its industrial assets in the Greater Toronto Area, Ontario and the Twin Cities Area, Minnesota, and the REIT's remaining office properties in
Calgary, Alberta. In aggregate, since March 2021, Artis has sold 48 industrial properties, 11 office properties, six retail properties and a portion of a
retail property. In addition, Artis has a portfolio of six industrial properties located in the Twin Cities Area, Minnesota, under an unconditional sale
36 | Artis Real Estate Investment Trust
2022 Annual Report | 37
Management’s Discussion & AnalysisManagement’s Discussion & Analysis agreement. Over the short-to-medium term, the REIT will continue to evaluate the sale of a portion of its industrial, office and retail assets in an
opportunistic and disciplined manner, with the goal of maximizing value on a tax-efficient basis.
The REIT's NCIB program has remained active since the announcement of the Business Transformation Plan. Under the NCIB that expired on
December 16, 2021, Artis purchased 10,160,396 units at a weighted average price of $11.26, and under the NCIB that expired on December 16, 2022,
Artis purchased 8,778,176 common units at a weighted-average price of $12.39, representing the maximum number of common units allowed under
each applicable term. The REIT renewed the NCIB effective December 19, 2022 and as at December 31, 2022 had purchased 387,068 units at a
weighted-average price of $8.94 under the term.
The units purchased under the NCIB in both 2021 and 2022 were purchased at a significant discount to NAV per unit of $17.38 at December 31, 2022
and NAV per unit of $17.37 at December 31, 2021.
In 2022, Artis completed the redemption of the outstanding Series A preferred units with a face value of $81,208.
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, 2022. 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 nonresident 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 2022 tax year as allocated and designated by the REIT in computing their respective income for the 2022 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.
In addition, Artis is focused on maintaining low leverage and debt metrics within the investment grade credit rating parameters defined by DBRS
Morningstar ("DBRS"). The REIT's senior unsecured debentures have a DBRS rating of BBB (low) and the REIT's preferred trust units have a DBRS
rating at Pfd-3 (low), both with Stable trends.
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.
Driving Organic Growth
BUSINESS ENVIRONMENT AND OUTLOOK
The second element of the Business Transformation Plan is driving organic growth, which is done by creating value for Artis's unitholders through
identifying operational efficiencies, increasing occupancy and in-place rents, and the completion of new development projects.
Occupancy at December 31, 2022, was stable at 90.1%, increased from 89.4% at December 31, 2021. In 2022, 982,778 square feet of new leases and
1,456,537 square feet of renewals commenced. These renewals were negotiated at a weighted-average rental increase when compared to expiring
rents of 4.9%. Growth in Same Property NOI was 1.8% for the year ended December 31, 2022.
Artis has numerous development projects in progress. The Park Lucero East development project, located in the Greater Phoenix Area, Arizona is well
underway. Artis has a 10% ownership interest in the development as well as a development management contract. In 2021, Artis acquired two parcels
of industrial development land in the Twin Cities Area, Minnesota. This project, Blaine 35, is expected to total 317,400 square feet upon completion.
Construction of the first phase was complete during the second quarter of 2022 and construction of the second phase is currently underway.
Approximately 73.4% of the gross leasable area for Blaine 35 I was leased upon completion of construction while 50.3% of the gross leasable area for
Blaine 35 II is pre-leased. Leasing for the remainder of the buildings is in progress.
The REIT also has a commercial and residential development project under construction. 300 Main is a 580,000 square foot building located in
Winnipeg, Manitoba. 300 Main is connected to 330 Main, a state-of-the-art multi-tenant retail property constructed in 2020. 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. During the first quarter of
2022, Earls Kitchen & Bar, occupying approximately 7,400 square feet, moved into their space on the main floor of the building. Pre-leasing of the first
20 floors of the 40-storey residential apartments is currently underway.
In 2022, Artis completed construction of the fifth and final phase of Park 8Ninety, located in the Greater Houston Area, Texas. This final phase
comprises approximately 675,000 square feet of additional industrial space to add to Artis's existing 1,120,414 square feet in the first four phases. Artis
has a 95% ownership interest in Park 8Ninety V.
Focusing on Value Investing
The third element of the Business Transformation Plan is to focus on value investing. This involves redeploying capital into new investments including
value-added assets, undervalued publicly traded real estate securities and any other real estate investment opportunities. In particular, Artis is focused
on identifying investments that are undervalued with potential to produce above average risk-adjusted returns over the medium-to-long term.
Artis will seek to 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.
The REIT's near-term focus continues to be on publicly listed Canadian real estate entities.
During the first quarter of 2022, Artis participated in an investor group to acquire Cominar Real Estate Investment Trust ("Cominar"). The REIT's
contribution to this transaction ("Cominar Transaction") was $112,000 to acquire approximately 32.64% of Iris Acquisition II LP ("Iris"), an entity formed
to acquire the outstanding units of Cominar, and $100,000 of junior preferred units that carry a rate of return of 18.0% per annum.
At December 31, 2022, Artis invested in equity securities with an aggregate fair value of $316,768. This includes equity securities of Dream Office Real
Estate Investment Trust , where, together with its joint actors, Artis acquired a 14% ownership position. This also includes equity securities of First
Capital Real Estate Investment Trust where, together with its joint actors, Artis owns approximately 9% of the outstanding units.
The successful execution of the 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.
SPECIAL DISTRIBUTION
The Board of Trustees declared a special distribution of $0.16 per common unit (the "Special Distribution"), which was comprised of $0.08 per common
unit payable in cash and $0.08 per common unit payable in common units. The Special Distribution was payable on December 31, 2022 to unitholders
of record on December 31, 2022, 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.
Leasing activity remained strong throughout 2022. There continues to be an increase in overall activity and in interest from new tenant prospects
across Artis’s portfolio. Occupancy including commitments increased to 92.3% at December 31, 2022, compared to 91.5% at December 31, 2021.
Artis’s leasing team has been working diligently to accommodate the increase in activity. In 2022, 3,690,415 square feet of new leases and renewals
were negotiated and signed (some of which were at properties that are held in joint venture arrangements, properties that are currently under
development and properties that were subsequently sold as part of our disposition plan). This magnitude of leasing activity is indicative of the strong
demand for high quality space. In terms of new leases and renewals that commenced during the year, a notable 982,778 square feet of new leases and
1,456,537 square feet of renewals began. The renewals that commenced in 2022 were negotiated at a weighted-average increase of 4.9% over expiring
rates. The fourth quarter marked the eighth consecutive quarter of growth in weighted-average rental rates on renewals. These are important
indicators of the strength of the REIT’s portfolio and are reflective of the leasing momentum that has been gaining over the last year.
As part of Artis's strategy, the REIT continues to evaluate the sale of a portion of its industrial, office and retail portfolios in an opportunistic and
disciplined manner, with the goal of maximizing value on a tax-efficient basis. During 2022, Artis sold three office properties and one industrial
property located in Canada and 18 industrial properties and two office properties located in the U.S. for an aggregate sale price of $514,148. In
aggregate since the announcement of the REIT’s Business Transformation Plan, Artis has sold 48 industrial properties, 11 office properties, six retail
properties and a portion of a retail property. In addition, Artis has a portfolio of six industrial properties located in the Twin Cities Area, Minnesota,
under an unconditional sale agreement. The REIT’s disposition plan is on track, but the macro economic environment, and more specifically higher
interest rates, affected the transaction landscape in the second half of 2022 and Artis expects that will continue into 2023. Nonetheless, Artis has
confidence that it will be able to successfully execute its disposition strategy in the coming year. Management is closely monitoring interest rate trends
and forecasts and is in continuous discussions with lenders in order to manage its debt maturities schedule. While this rising interest rate environment
has impacted the public markets and has led to inefficiencies in the public real estate sector, it has also presented compelling opportunities that are in
line with the Artis's value investing strategy. Artis continues to diligently consider all available options and opportunities and, in doing so, is taking into
consideration the current environment and how to ensure the best interests of unitholders is achieved. The REIT continues to believe that the Business
Transformation Plan is a strategy that will generate long term NAV per unit growth and create value for Artis's unitholders.
Going forward, Artis will continue to focus on improving its balance sheet while deploying some of the proceeds from disposition activity into new real
estate investments, including undervalued publicly traded real estate securities and value-add real estate acquisitions or developments. Since the
announcement of the Business Transformation Plan on March 10, 2021, the REIT has made significant progress towards its implementation, and
continues to have strong conviction in the REIT's vision, strategy and the path forward.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") UPDATE
As part of Artis's vision, 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 REIT 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.
Artis strives to be a sustainability leader, and to demonstrate a high standard of ESG consciousness and best practices through its commitment to
ongoing review, transparency and performance. Since the announcement of the Business Transformation Plan and the REIT's commitment to ESG best
practices in March 2021, Artis's ESG program has undergone a significant transformation. During this time, Artis has accomplished the following:
•
•
•
•
•
•
•
•
•
•
•
•
created an internal ESG Committee, comprised of senior level employees across all offices who meet monthly to discuss, implement and
collaborate on ESG best practices;
added Yardi Pulse to complement its reporting tools and provide sustainability-focused, property-level reporting functionality;
commenced a portfolio-wide, property-by-property climate risk assessment utilizing Moody's Climate on Demand tool;
incorporated reporting principles of the Sustainability Accounting Standards Board (“SASB”) Real Estate Sustainability Accounting
Standard;
submitted to GRESB for the first time since 2019;
launched an ESG Community website to facilitate collaboration and sharing of ESG insights and ideas with tenants;
conducted an inaugural annual tenant engagement and satisfaction survey;
conducted an inaugural annual employee engagement and diversity, equity and inclusion survey;
provided leadership training to all employees;
created an internal philanthropy committee to oversee the REIT's charitable giving and community involvement initiatives;
reviewed and improved all Board mandates, charters, policies and position descriptions, including incorporating enhancements to include
applicable responsibility for ESG matters in the mandate and all charters; and
adopted a comprehensive pay-for-performance structure related to short-term incentive compensation and long-term incentive
compensation for the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer.
These are only a few examples of the immense work that has gone in to elevating our ESG program and fulfilling our commitment to unitholders.
38 | Artis Real Estate Investment Trust
2022 Annual Report | 39
Management’s Discussion & AnalysisManagement’s Discussion & Analysis At December 31, 2022, the REIT had 9 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 17 properties with an Energy Star
certification.
Additional information about Artis's comprehensive corporate sustainability program, including a copy of Artis's 2021 ESG Report can be accessed on
the REIT's website at the following link: www.artisreit.com.
2022 OVERVIEW
SELECTED FINANCIAL INFORMATION
000's, except per unit amounts
2022
2021
Change
Change
2020
Year ended
December 31,
Year ended
%
December 31,
Revenue:
Rental revenue from investment properties
$
372,512
$
401,638
$
Condominium sales
Total revenue
Net operating income
Net (loss) income
Total comprehensive income (loss)
Basic (loss) income per common unit
Diluted (loss) income per common unit
—
372,512
17,861
419,499
$
209,980
$
237,785
$
(5,294)
105,537
(0.18)
(0.19)
389,175
387,702
2.87
2.86
Distributions per unit:
Common units (1)
Preferred units - Series A
Preferred units - Series E
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)
Same Property NOI growth (decline) (2)
Adjusted EBITDA interest coverage ratio (2)
$
$
0.76
1.06
1.37
1.50
$
2.98
1.42
1.37
1.50
$
164,791
$
174,343
$
1.39
43.2 %
1.34
44.0 %
$
112,552
$
124,476
$
(11,924)
0.95
63.2 %
1.8 %
2.98
0.96
61.5 %
(4.1) %
3.80
(29,126)
(17,861)
(46,987)
(27,805)
(394,469)
(282,165)
(3.05)
(3.05)
(2.22)
(0.36)
—
—
(9,552)
0.05
(0.01)
(7.3) % $
458,917
(100.0) %
(11.2) %
—
458,917
(11.7) % $
269,275
(101.4) %
(72.8) %
(106.3) %
(106.6) %
(74.5) % $
(25.4) %
— %
— %
21,543
(6,274)
0.03
0.02
0.54
1.42
1.37
1.50
(5.5) % $
192,411
3.7 %
(0.8) %
(9.6) % $
(1.0) %
1.7 %
1.41
38.3 %
139,552
1.02
52.9 %
5.9 %
(1.7) %
(0.82)
(21.6) %
3.48
(1) Includes the Special Distribution declared in December 2021 and December 2022. 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 and December 2022.
000's, except per unit amounts
2022
2021
Change
2020
December 31,
December 31,
%
December 31,
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)
$
4,553,913
$
4,576,024
(0.5) % $
4,859,841
974,063
17.38
18.9 %
48.5 %
1,166,123
(16.5) %
1,648,305
17.37
23.7 %
42.9 %
0.1 %
(4.8) %
5.6 %
15.03
26.2 %
49.3 %
$
2,034,409
$
1,902,748
6.9 % $
1,901,073
(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.
Financial and Operational Results
Rental revenue from investment properties and net operating income decreased year-over-year primarily due to the impact of property dispositions
throughout 2021 and 2022.
Artis reported portfolio occupancy of 92.3% (including commitments) at December 31, 2022, increased from 91.5% at December 31, 2021. During the
year, 982,778 square feet of new leases and 1,456,537 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 4.9%.
Net (loss) income and total comprehensive income (loss) were impacted by the fair value change on investment properties (loss of $178,431 in 2022,
compared to gain of $197,511 in 2021), the fair value change on financial instruments (loss of $21,130 in 2022, compared to a gain of $21,224 in 2021),
interest expense ($89,437 in 2022, compared to $69,648 in 2021), and equity securities expenses ($1,890 in 2022, compared to $186 in 2021).
Partially offsetting the above decreases to net income was net income from equity accounted investments ($74,659 in 2022, compared to $16,795 in
2021), interest and other income ($18,944 in 2022 compared to $1,885 in 2021), distribution income from equity securities ($10,710 in 2022, compared to
$898 in 2021) and corporate expenses ($7,661 in 2022, compared to $12,527 in 2021).
Foreign exchange had an impact on Artis's financial results, due to a higher US dollar to Canadian dollar average exchange rate of 1.3017 in 2022,
compared to 1.2537 in 2021.
FFO per unit for 2022 was $1.39 increased from $1.34 for 2021, while AFFO per unit for 2022 was $0.95 compared to $0.96 for 2021. FFO per unit in
2022 was primarily impacted by an increase in interest and other income due to the preferred investment as part of the Cominar Transaction, increased
distribution income from equity securities, an increase in income from equity accounted investments primarily due to the investment in common units
as part of the Cominar Transaction and realized gains on the sale of equity securities, partially offset by decreased net operating income as a result of
dispositions completed in 2021 and 2022 and increased 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 NCIB. The REIT reported conservative FFO and AFFO payout ratios of 43.2% and 63.2%, respectively, for 2022.
Balance Sheet and Liquidity
During 2022, Artis drew a net balance of $457,523 on its revolving credit facilities and issued three-year Series E senior unsecured debentures for gross
proceeds of $200,000. The cash was primarily used for purchases of equity securities, repurchases of units under the NCIB, the Cominar Transaction
and the redemption of the Series A preferred units. Also during 2022, the REIT received new mortgage financing in the amount of $24,000, repaid or
partially repaid 14 mortgages in the amount of $165,768, and drew on a construction loan in the amount of $28,259. Total debt to GBV was 48.5% at
December 31, 2022, compared to 42.9% at December 31, 2021. Artis's Adjusted EBITDA interest coverage ratio was 2.98 for 2022, compared to 3.80
for 2021.
In 2022, Artis utilized the NCIB to purchase 8,156,276 common units for an aggregate market price of $100,572 and 47,300 Series A, 94,400 Series E and
68,800 Series I preferred units for an aggregate market price of $5,087.
At December 31, 2022, NAV per unit was $17.38, increased from $17.37 at December 31, 2021. The increase is primarily due to net operating income,
the impact of foreign exchange, income from equity accounted investments, and the impact of units purchased under the NCIB, partially offset by the
fair value loss on investment properties, distributions to unitholders, and the fair value loss on financial instruments during the year.
Distributions
In 2022, Artis declared distributions of $104,696 to unitholders, which included distributions to preferred unitholders in the amount of $15,856.
The distributions to unitholders included the Special Distribution of $0.16 per common unit, which was comprised of $0.08 per common unit payable in
cash and $0.08 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, 2021
New development
Acquisition
Dispositions
76
1
1
8,748
119
576
(19)
(2,694)
47
—
—
(5)
7,051
—
—
(481)
33
—
—
—
2,143
156
17,942
—
—
—
1
1
119
576
(24)
(3,175)
Portfolio properties, December 31, 2022
59
6,749
42
6,570
33
2,143
134
15,462
New Development
In 2022, Artis completed the development of Blaine 35 I, a 118,500 square foot industrial property located in the Twin Cities Area, Minnesota.
40 | Artis Real Estate Investment Trust
2022 Annual Report | 41
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Acquisition
On September 30, 2022, the REIT acquired the remaining 5% interest in Park 8Ninety II, an industrial property located in the Greater Houston Area,
Texas, for total consideration of US$2,508. The REIT now owns 100% of the property.
Dispositions
During 2022, Artis sold 19 industrial properties and five office properties for an aggregate sale price of $514,148. The sale proceeds, net of costs of
$8,592, and related debt of $164,821, were $340,735.
PARTICIPATION IN INVESTOR GROUP TO ACQUIRE COMINAR REAL ESTATE INVESTMENT TRUST
On March 1, 2022, Artis participated in a consortium to acquire 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's contribution to the Cominar Transaction was $112,000 to acquire 32.64% of the total common equity
units in the newly-formed entity and $100,000 of junior preferred units that carry a rate of return of 18.0% per annum. As part of the consideration, the
REIT contributed its previously-owned Cominar units with a fair value of $13,488.
PROPERTY PORTFOLIO
At December 31, 2022, the REIT's portfolio was comprised of 134 commercial properties totalling approximately 15.5 million square feet ("S.F.") of
gross leasable area ("GLA").
The REIT also has ownership interest in ten investment properties, one investment property under development, one parcel of development land and
properties acquired as part of the Cominar Transaction, 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.
Office total
Retail
Diversification by Geographical Region
GLA
Net Operating Income (Q4-22)
WI 11.4%
AB 12.6%
WI 12.9%
AB 16.2%
TX 10.8%
MN 20.6%
BC 2.1%
MB 24.2%
TX 6.8%
NY 0.5%
MN 21.5%
ON 0.6%
SK 3.6%
CO 2.8%
AZ 11.3%
Canada
U.S.
43.1%
56.9%
Diversification by Asset Class
BC 2.8%
MB 15.5%
ON 1.2%
SK 4.3%
CO 5.0%
AZ 13.3%
Canada
U.S.
40.0%
60.0%
Province /
State
Property
count
Owned share
of GLA
(000's S.F.)
% of
portfolio
GLA
%
Occupied
%
Committed (2)
Portfolio by Asset Class (1)
Asset class
City
Canadian portfolio:
Industrial
Calgary
Greater Edmonton Area
Greater Vancouver Area
Red Deer
Saskatoon
Winnipeg
Industrial total
Office
Greater Edmonton Area
Greater Toronto Area
Greater Vancouver Area
Saskatoon
Winnipeg
Calgary
Fort McMurray
Grande Prairie
Greater Edmonton Area
Saskatoon
Winnipeg
Retail total
Total Canadian portfolio
U.S. portfolio:
Industrial
Industrial total
Office
Office total
Total U.S. portfolio
Greater Phoenix Area
Twin Cities Area
Greater Houston Area
Greater Denver Area
Greater Phoenix Area
Madison
Twin Cities Area
AB
AB
BC
AB
SK
MB
AB
ON
BC
SK
MB
AB
AB
AB
AB
SK
MB
AZ
MN
TX
CO
AZ
WI
MN
5
2
1
1
2
26
37
1
1
2
1
9
14
5
8
5
5
3
7
33
84
7
10
5
22
2
4
16
6
28
50
350
94
73
126
269
1,658
2,570
29
100
248
64
1,511
1,952
344
187
355
459
219
579
2,143
6,665
921
1,590
1,668
4,179
430
833
1,762
1,593
4,618
8,797
2.3 %
0.6 %
0.5 %
0.8 %
1.7 %
10.6 %
16.5 %
0.2 %
0.6 %
1.6 %
0.5 %
9.8 %
12.7 %
2.2 %
1.2 %
2.3 %
3.0 %
1.4 %
3.8 %
13.9 %
87.3 %
100.0 %
100.0 %
61.6 %
100.0 %
96.8 %
94.3 %
27.5 %
100.0 %
89.8 %
89.6 %
82.8 %
84.0 %
96.2 %
86.9 %
65.3 %
95.1 %
99.6 %
98.2 %
90.9 %
43.1 %
90.2 %
87.3 %
100.0 %
100.0 %
61.6 %
100.0 %
99.5 %
96.1 %
27.5 %
100.0 %
89.8 %
89.6 %
83.6 %
84.6 %
96.2 %
89.4 %
65.3 %
95.1 %
99.6 %
99.3 %
91.4 %
91.2 %
100.0 %
100.0 %
5.9 %
10.3 %
10.8 %
27.0 %
2.8 %
5.4 %
11.4 %
10.3 %
29.9 %
85.9 %
98.1 %
93.9 %
87.7 %
90.1 %
83.6 %
87.1 %
86.4 %
56.9 %
89.9 %
96.9 %
98.1 %
98.1 %
88.8 %
96.5 %
85.8 %
87.3 %
88.5 %
93.0 %
92.3 %
GLA
Net Operating Income (Q4-22)
(1) Information is as at December 31, 2022, 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, 2022, plus commitments on vacant space.
Total Canadian and U.S. portfolio
134
15,462
100.0 %
90.1 %
Retail
13.9%
Office
42.6%
Retail 20.2%
Industrial 31.7%
Industrial
43.5%
Office
48.1%
New Developments in Process
At December 31, 2022, Artis had two development projects in process, 300 Main 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. During Q1-22, Earls Kitchen & Bar, occupying approximately 7,400
square feet, moved into their space on the main floor of the building. Pre-leasing of the first 20 floors of the 40-storey residential apartments is
currently underway.
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. During Q2-22, construction of the first phase of the project, Blaine 35 I, comprising 118,500 square feet of
leasable area was complete. Approximately 73.4% of the building was leased upon completion of construction while leasing for the remainder of the
building is in progress. Construction of the second phase, Blaine 35 II is currently underway and will comprise two buildings expected to total
approximately 198,900 square feet of leasable area. Pre-leasing is in progress and Artis has negotiated leases for approximately 50.3% of the gross
leasable area of Blaine 35 II.
42 | Artis Real Estate Investment Trust
2022 Annual Report | 43
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Refer to the Risks and Uncertainties section of this MD&A for discussion of the risks related to Artis's ongoing development projects.
Future Development Program
Asset class
City
Province / State
Estimated owned share of
GLA (000's of S.F.)
Property
Industrial
Greater Houston Area
Office
Office
Madison
Madison
TX
WI
WI
789
43
50
Cedar Port - Future Phases
1630 Aspen
Heartland Trail Land
Artis’s 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 Q4-22 net operating income:
Single tenant 40.2%
Additional information about these developments will be released as progress is made and key milestones are achieved.
Multi-tenant 59.8%
Rezoning and Densification Initiatives
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.
PORTFOLIO SUMMARY BY ASSET CLASS
Industrial Portfolio
Artis’s industrial portfolio is comprised of both single tenant and multi-tenant properties strategically located in Canadian and U.S. markets. At
December 31, 2022, the REIT's industrial portfolio was comprised of 59 properties totalling approximately 6.7 million square feet of gross leasable area.
At December 31, 2022, the fair value of the properties in Artis’s industrial portfolio was $1,138,565, and represented 43.5% of the REIT’s GLA at
December 31, 2022, and 31.7% of Q4-22 net operating income. Below is a breakdown of REIT’s industrial portfolio by geographical region:
GLA
Net Operating Income (Q4-22)
TX 24.7%
AB 8.4%
BC 1.1%
TX 21.5%
AB 11.8%
BC 1.3%
MB 24.6%
MN 23.6%
SK 4.0%
MN 26.7%
AZ 13.6%
Canada
U.S.
38.1%
61.9%
MB 14.4%
SK 4.7%
AZ 19.6%
Canada
U.S.
32.2%
67.8%
The following is a historical summary of key performance indicators related to the REIT’s industrial portfolio:
Q4-22
Q3-22
Q2-22
Q1-22
Q4-21
Q3-21
Q2-21
Q1-21
Number of properties
Occupancy (including commitments)
Same Property NOI growth (decline) (1)
59
97.3 %
7.6 %
76
95.3 %
4.4 %
75
95.0 %
4.5 %
75
95.2 %
0.0 %
76
95.5 %
(3.0) %
74
95.6 %
(1.4) %
103
96.5 %
(4.2) %
102
97.9 %
1.1 %
Leasable area renewed (in S.F.)
189,058
313,782
167,209
157,318
435,376
138,716
214,085
327,096
Increase in weighted-average rental rate
19.2 %
5.5 %
18.3 %
12.2 %
23.1 %
3.7 %
13.3 %
8.5 %
(1) Represents a non-GAAP measure . Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
Artis's industrial portfolio includes 224 tenant leases with a weighted-average term to maturity of 5.7 years. Approximately 39.4% 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.
The following is a list of Artis’s top 10 industrial tenants by gross revenue:
Top 10 Industrial Tenants by Gross Revenue (1)
Tenant
location
% of total industrial
gross revenue (2)
Owned share of GLA
(000's of S.F.)
% of total
industrial GLA
Weighted-average
remaining lease
term
Tenant
Bell Canada
PBP, Inc.
Silent Aire USA Inc.
Civeo Canada Ltd.
Maple Leaf Consumer Foods Inc.
Distribution Alternatives, Inc.
SunGard Recovery Services Inc.
St. Jude Medical Cardiology Div. Inc.
Footprint LLC
VWR International, LLC
Canada
U.S.
U.S.
Canada
Canada
U.S.
U.S.
U.S.
U.S.
U.S.
9.5 %
5.1 %
4.1 %
3.7 %
3.1 %
3.0 %
2.9 %
2.4 %
2.2 %
1.9 %
111
519
289
72
163
403
99
185
132
125
1.6 %
7.7 %
4.3 %
1.1 %
2.4 %
6.0 %
1.5 %
2.7 %
2.0 %
1.9 %
Total
37.9 %
2,098
31.2 %
(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.
7.0
8.9
5.0
5.5
6.5
10.0
3.0
1.2
7.1
4.9
6.9
44 | Artis Real Estate Investment Trust
2022 Annual Report | 45
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Office Portfolio
The following is a list of Artis's top 10 office tenants by gross revenue:
Artis’s office portfolio is strategically located across primary and secondary markets in both Canada and the U.S. At December 31, 2022, the REIT's
office portfolio was comprised of 42 properties totalling approximately 6.6 million square feet of gross leasable area.
At December 31, 2022, the fair value of the properties in Artis’s office portfolio was $1,683,600, representing 42.6% of the REIT’s GLA at December 31,
2022, and 48.1% of Q4-22 net operating income. Below is a breakdown of REIT’s office portfolio by geographical region:
GLA
AB 0.4%
BC 3.8%
MB 23.1%
ON 1.5%
SK 1.0%
AZ 12.7%
WI 26.8%
MN 24.2%
Net Operating Income (Q4-22)
AB 1.1%
BC 5.0%
WI 26.9%
NY 1.0%
MN 26.9%
MB 10.1%
ON 2.8%
SK 0.9%
AZ 14.8%
CO 6.5%
Canada
U.S.
29.8%
70.2%
CO 10.5%
Canada
U.S.
19.9%
80.1%
The following is a historical summary of key performance indicators related to the REIT’s office portfolio:
Q4-22
Q3-22
Q2-22
Q1-22
Q4-21
Q3-21
Q2-21
Q1-21
Number of properties
Occupancy (including commitments)
Same Property NOI growth (decline) (1)
42
43
87.3 %
87.4 %
7.0 %
6.1 %
44
88.3 %
(1.4) %
45
87.2 %
(6.4) %
47
86.4 %
(4.0) %
53
85.9 %
(8.7) %
52
53
86.0 %
86.3 %
(9.2) %
(10.4) %
Leasable area renewed (in S.F.)
58,967
109,383
143,219
22,302
286,546
105,402
48,738
111,941
(Decrease) increase in weighted-average rental rate
(0.7) %
(0.4) %
1.0 %
7.9 %
(2.6) %
0.9 %
7.8 %
(1.6) %
(1) Represents a non-GAAP measure. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
Artis's 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 Q4-22 net operating income:
Downtown 17.8%
Artis's office portfolio includes 479 tenant leases with a weighted-average term to maturity of 5.5 years. Approximately 49.6% 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, civic or municipal services.
Suburban 82.2%
7.9
0.2
4.0
11.8
13.6
6.0
4.0
6.0
10.6
1.3
7.3
Top 10 Office Tenants by Gross Revenue (1)
Tenant
location
% of total office
gross revenue (2)
Owned share of GLA
(000's of S.F.)
% of total
office GLA
Weighted-average
remaining lease term
Tenant
Government tenants
AT&T (3)
Bell MTS
Prime Therapeutics, LLC
Catalent Pharma Solutions, LLC
TDS Telecommunications Corporation
CB Richard Ellis, Inc.
Recipe Unlimited Corporation
UCare Minnesota
Telephone and Data Systems, LLC
U.S. & Canada
U.S.
Canada
U.S.
U.S.
U.S.
U.S.
Canada
U.S.
U.S.
7.4 %
4.6 %
4.2 %
4.2 %
3.0 %
2.9 %
2.7 %
2.4 %
2.1 %
1.8 %
454
257
214
386
233
150
108
100
124
105
6.9 %
3.9 %
3.3 %
5.9 %
3.5 %
2.3 %
1.6 %
1.5 %
1.9 %
1.6 %
Total
35.3 %
2,131
32.4 %
(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.
(3) AT&T vacated their premises on February 28, 2023.
Retail Portfolio
Artis's retail portfolio is primarily open-air, service-based properties located across Western Canada. At December 31, 2022, the REIT's retail portfolio
was comprised of 33 properties totalling approximately 2.1 million square feet of gross leasable area.
At December 31, 2022, the fair value of the properties in Artis's retail portfolio was $670,561, and represented 13.9% of the REIT’s GLA at December 31,
2022, and 20.2% of Q4-22 net operating income. Below is a breakdown of REIT’s retail portfolio by geographical region:
GLA
SK 10.2%
Net Operating Income (Q4-22)
SK 11.9%
MB 27.0%
AB 62.8%
MB 28.4%
AB 59.7%
The following is a historical summary of key performance indicators related to the REIT’s retail portfolio:
Q4-22
Q3-22
Q2-22
Q1-22
Q4-21
Q3-21
Q2-21
Q1-21
Number of properties
Occupancy (including commitments)
Same Property NOI (decline) growth (1)
33
91.4 %
(1.8) %
33
92.3 %
(0.4) %
33
91.4 %
(0.6) %
33
33
33
91.4 %
91.5 %
91.5 %
2.9 %
3.5 %
1.6 %
36
90.8 %
13.8 %
39
90.6 %
(4.0) %
Leasable area renewed (in S.F.)
77,336
63,772
77,996
76,195
64,609
85,350
63,574
39,176
Increase (decrease) in weighted-average rental rate
5.2 %
5.1 %
(3.8) %
4.5 %
(2.0) %
2.4 %
1.5 %
6.3 %
(1) Represents a non-GAAP measure . Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
46 | Artis Real Estate Investment Trust
2022 Annual Report | 47
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Artis’s retail properties are primarily open-air neighbourhood and community strip centres that provide a wide array of necessities such as food and
services. The following is a breakdown of the REIT’s retail property type based on Q4-22 net operating income:
Occupancy Report by Geographical Region (1)
Community Centre
(100,000 - 400,000 SF)
46.6%
Convenience Centre
(10,000 - 39,999 SF)
10.8%
Artis's retail portfolio includes 403 tenant leases with a weighted-average term to maturity of 4.0 years. Approximately 62.1% of the REIT's retail gross
revenue is derived from national or government tenants. As indicated below, the largest tenant by gross revenue is Shoppers Drug Mart, a leading
Canadian retail pharmacy and marketplace chain.
The following is a list of Artis’s top 10 retail tenants by gross revenue:
Neighbourhood Centre
(40,000 - 99,999 SF)
42.6%
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Total Canada
U.S.:
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
Total U.S.
Q4-22%
Committed (2)
Q4-22
Q3-22
Q2-22
Q1-22
Q4-21
85.0 %
92.1 %
93.1 %
100.0 %
98.6 %
91.2 %
98.3 %
88.8 %
92.1 %
N/A
98.1 %
85.8 %
93.0 %
84.7 %
92.1 %
91.4 %
100.0 %
98.6 %
90.2 %
95.3 %
87.7 %
86.5 %
N/A
98.1 %
83.6 %
89.9 %
86.4 %
93.5 %
90.9 %
100.0 %
98.6 %
90.5 %
94.6 %
88.4 %
89.4 %
100.0 %
95.6 %
85.0 %
90.5 %
84.7 %
93.5 %
90.4 %
100.0 %
97.2 %
89.6 %
96.1 %
89.9 %
89.7 %
100.0 %
100.0 %
86.0 %
91.3 %
84.8 %
91.8 %
90.4 %
89.9 %
97.0 %
89.4 %
87.4 %
92.3 %
88.7 %
100.0 %
100.0 %
86.5 %
89.6 %
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 %
Top 10 Retail Tenants by Gross Revenue (1)
Total portfolio
92.3 %
90.1 %
90.5 %
90.7 %
89.5 %
89.4 %
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
(1) Information is as at December 31, 2022, and excludes properties under development and properties held in equity accounted investments.
(2) Percentage committed is based on occupancy at December 31, 2022, plus commitments on vacant space.
4.2
2.9
1.9
4.9
2.5
2.4
2.5
5.3
3.7
13.8
3.8
Tenant
Shoppers Drug Mart
Cineplex Entertainment LP
Sport Chek International Ltd.
Winners
Jysk Linen 'n Furniture
The Brick
PetSmart, Inc.
Sobeys
Mark's Work Wearhouse
GoodLife Fitness Centres, Inc.
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
3.8 %
3.7 %
3.3 %
2.6 %
2.5 %
2.4 %
1.8 %
1.5 %
1.5 %
1.5 %
64
108
81
84
75
62
40
37
44
35
3.0 %
5.0 %
3.8 %
3.9 %
3.5 %
2.9 %
1.9 %
1.7 %
2.1 %
1.6 %
Total
24.6 %
630
29.4 %
(1) Based on owned share of GLA of properties. Excludes properties under development and properties held in equity accounted investments.
Residential Portfolio
Artis's residential portfolio is comprised of one development project, 300 Main, located in Winnipeg, Manitoba. At December 31, 2022, the fair value
of Artis's residential portfolio was $190,845.
PORTFOLIO OCCUPANCY
Occupancy levels impact the REIT's revenues and net operating income. Occupancy and commitments at December 31, 2022, and the previous four
quarterly periods, were as follows:
Occupancy Report by Asset Class (1)
Q4-22 %
Committed (2)
Q4-22
Q3-22
Q2-22
Q1-22
Q4-21
Industrial
Office
Retail
97.3 %
87.3 %
91.4 %
94.1 %
85.7 %
90.9 %
93.3 %
86.2 %
91.7 %
93.6 %
87.1 %
90.0 %
94.5 %
83.1 %
89.9 %
93.9 %
83.5 %
90.2 %
Total portfolio
92.3 %
90.1 %
90.5 %
90.7 %
89.5 %
89.4 %
PORTFOLIO LEASING ACTIVITY AND LEASE EXPIRIES
Renewal Summary (1)
Q4-22
Q3-22
Q2-22
Q1-22
Q4-21
Q3-21
Q2-21
Q1-21
Leasable area renewed (in S.F.)
Increase in weighted-average rental rate
325,361
486,937
388,424
255,815
746,531
329,468
326,397
478,213
6.9 %
3.0 %
3.7 %
7.8 %
3.9 %
2.0 %
7.3 %
4.3 %
(1) Based on owned share of GLA of properties and excludes properties under development and properties held in equity accounted investments.
In 2022, 1,456,537 square feet were renewed at an increase in the weighted-average rental rate of 4.9%, compared to 1,920,609 square feet renewed at
an increase in the weighted-average rental rate of 4.1% in 2021.
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, 2022, for the leasable area expiring in the
year indicated. In-place rents do not reflect either the average rate over the term of the lease or the rate in place in the year of expiry.
Market rents 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, 2022, were estimated to be 1.1% above in-place rents across the portfolio, compared to 1.1% above in-place rents at September 30,
2022 and 0.2% above in-place rents at December 31, 2021. Today's market rents for the 2023 and 2024 lease expiries are estimated to be 3.2% above
and 1.6% 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.
48 | Artis Real Estate Investment Trust
2022 Annual Report | 49
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
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
2023
2024
2025
2026
2027+
Office:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
Retail:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
Total Portfolio:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
400,376
3,600
700,273
704,673
625,272
474,911
3,839,637
6,748,742
941,748
43,310
1,074,136
381,488
489,143
881,842
2,758,680
6,570,347
194,596
12,570
498,269
312,078
247,021
315,327
562,794
2,142,655
1,536,720
59,480
2,272,678
1,398,239
1,361,436
1,672,080
7,161,111
2.6 %
0.0 %
4.5 %
4.6 %
4.0 %
3.1 %
24.7 %
43.5 %
6.1 %
0.3 %
6.9 %
2.5 %
3.3 %
5.6 %
17.9 %
42.6 %
1.3 %
0.1 %
3.2 %
2.0 %
1.6 %
2.0 %
3.7 %
13.9 %
10.0 %
0.4 %
14.6 %
9.1 %
8.9 %
10.7 %
46.3 %
Lease Maturities and Rental Rates by Geographical Location
15,461,744
100.0 %
N/A
N/A
$7.67
$7.08
$10.19
$8.54
$7.89
$8.05
N/A
N/A
$18.40
$21.09
$20.50
$18.99
$17.45
$18.39
N/A
N/A
$22.34
$24.57
$25.36
$24.46
$24.45
$24.04
N/A
N/A
$15.96
$14.81
$16.64
$17.05
$12.87
$14.45
N/A
N/A
$8.01
$7.20
$10.53
$9.16
$7.80
$8.13
N/A
N/A
$18.89
$20.89
$20.35
$18.60
$17.99
$18.66
N/A
N/A
$23.17
$23.47
$24.73
$25.06
$24.55
$24.13
N/A
N/A
$16.48
$14.57
$16.64
$17.14
$13.04
$14.61
Alberta:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
British Columbia:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
Manitoba:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
Ontario:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
Saskatchewan:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
Arizona:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
Square Feet
Expiring
% of GLA
Weighted-Average
In-Place Rental Rate
Weighted-Average
Market Rental Rate
296,933
12,570
357,639
188,268
241,061
254,564
592,910
2.0 %
0.1 %
2.3 %
1.2 %
1.6 %
1.6 %
3.8 %
1,943,945
12.6 %
25,268
1,146
36,648
28,126
19,532
49,268
160,737
320,725
322,135
14,006
638,236
421,860
431,314
730,883
1,189,026
3,747,460
—
—
—
—
—
—
100,398
100,398
7,579
—
45,942
43,841
12,339
22,127
420,018
551,846
82,233
15,038
237,203
153,440
306,461
175,176
784,788
0.2 %
0.0 %
0.2 %
0.2 %
0.1 %
0.3 %
1.1 %
2.1 %
2.1 %
0.1 %
4.1 %
2.7 %
2.8 %
4.7 %
7.7 %
24.2 %
0.0 %
0.0 %
0.0 %
0.0 %
0.0 %
0.0 %
0.6 %
0.6 %
0.0 %
0.0 %
0.3 %
0.3 %
0.2 %
0.1 %
2.7 %
3.6 %
0.5 %
0.1 %
1.5 %
1.0 %
2.0 %
1.2 %
5.0 %
1,754,339
11.3 %
N/A
N/A
$23.27
$24.23
$23.53
$23.75
$22.28
$23.14
N/A
N/A
$23.99
$30.14
$26.63
$25.09
$15.59
$20.35
N/A
N/A
$11.11
$14.68
$12.75
$12.39
$13.42
$12.84
N/A
N/A
N/A
N/A
N/A
N/A
$16.00
$16.00
N/A
N/A
$19.78
$25.85
$26.52
$30.33
$15.01
$17.17
N/A
N/A
$18.24
$13.67
$16.41
$20.78
$18.05
$17.66
N/A
N/A
$23.94
$22.80
$23.01
$24.21
$21.33
$22.77
N/A
N/A
$29.12
$31.91
$26.87
$24.72
$15.18
$20.89
N/A
N/A
$11.72
$14.23
$13.13
$12.82
$13.54
$13.08
N/A
N/A
N/A
N/A
N/A
N/A
$16.50
$16.50
N/A
N/A
$19.56
$24.36
$26.41
$30.68
$14.45
$16.61
N/A
N/A
$18.52
$13.70
$17.28
$22.72
$19.25
$18.63
50 | Artis Real Estate Investment Trust
2022 Annual Report | 51
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Lease Maturities and Rental Rates by Geographical Location (continued)
LARGEST SEGMENTS BY NET OPERATING INCOME
Square Feet
Expiring
% of GLA
Weighted-Average
In-Place Rental Rate
Weighted-Average
Market Rental Rate
Artis's real estate is diversified across five Canadian provinces and five U.S. states, and across the industrial, office and retail asset classes. For the
three months ended December 31, 2022, the five largest segments of the REIT's portfolio (by net operating income) were Twin Cities Area office,
Madison office, Twin Cities Area industrial, Greater Phoenix Area office and Greater Houston Area industrial.
Colorado:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
Minnesota:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
Texas:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
Wisconsin:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
Total portfolio:
Current vacancy
Monthly tenants
2023
2024
2025
2026
2027+
52,937
9,304
287,178
18,067
45,112
6,034
11,047
429,679
429,303
7,416
260,347
359,469
110,314
207,717
1,808,737
3,183,303
31,642
—
—
36,501
95,591
—
1,504,441
1,668,175
288,690
—
409,485
148,667
99,712
226,311
589,009
1,761,874
1,536,720
59,480
2,272,678
1,398,239
1,361,436
1,672,080
7,161,111
0.3 %
0.1 %
1.9 %
0.1 %
0.3 %
0.0 %
0.1 %
2.8 %
2.8 %
0.0 %
1.7 %
2.4 %
0.7 %
1.3 %
11.7 %
20.6 %
0.2 %
0.0 %
0.0 %
0.2 %
0.6 %
0.0 %
9.8 %
10.8 %
1.9 %
0.0 %
2.6 %
1.0 %
0.6 %
1.5 %
3.8 %
11.4 %
10.0 %
0.4 %
14.6 %
9.1 %
8.9 %
10.7 %
46.3 %
15,461,744
100.0 %
N/A
N/A
$20.28
$31.35
$31.31
$28.80
$32.78
$22.70
N/A
N/A
$10.55
$7.28
$16.46
$18.98
$11.53
$11.65
N/A
N/A
N/A
$9.41
$8.09
N/A
$6.37
$6.54
N/A
N/A
$15.05
$15.76
$16.17
$16.57
$12.96
$14.59
N/A
N/A
$15.96
$14.81
$16.64
$17.05
$12.87
$14.45
N/A
N/A
$19.64
$28.30
$28.33
$28.30
$28.70
$21.55
N/A
N/A
$10.15
$7.47
$15.38
$16.35
$11.83
$11.58
N/A
N/A
N/A
$8.40
$7.42
N/A
$6.05
$6.19
N/A
N/A
$16.52
$16.86
$16.13
$16.24
$14.54
$15.69
N/A
N/A
$16.48
$14.57
$16.64
$17.14
$13.04
$14.61
Twin Cities Area Office Segment
The Twin Cities Area office segment represents 13.0% of Q4-22 net operating income and 10.3% of the overall portfolio by GLA. Direct vacancy in the
Twin Cities Area office market, as reported by CBRE, was 21.1% at December 31, 2022, compared to 20.6% at September 30, 2022. At December 31,
2022, the Twin Cities Area office segment of Artis's portfolio was 87.1% occupied, compared to 87.2% at September 30, 2022. During 2023, 97,614
square feet come up for renewal, which represents 0.6% of the total portfolio GLA; 20.2% was renewed or committed to new leases at December 31,
2022. Of Artis's total Twin Cities Area office GLA, 65.3% expires in 2027 or later.
Madison Office Segment
The Madison office segment represents 12.9% of Q4-22 net operating income and 11.4% of the overall portfolio by GLA. At December 31, 2022, the
Madison office segment of Artis's portfolio was 83.6% occupied, compared to 85.0% at September 30, 2022. During 2023, 409,485 square feet come up
for renewal, which represents 2.6% of the total portfolio GLA; 7.6% was renewed or committed to new leases at December 31, 2022. Of Artis's total
Madison office GLA, 33.4% expires in 2027 or later.
Twin Cities Area Industrial Segment
The Twin Cities Area industrial segment represents 8.5% of Q4-22 net operating income and 10.3% of the overall portfolio by GLA. The availability rate
in the Twin Cities Area industrial market, as report by CBRE, was 3.6% at December 31, 2022, improved from 3.9% at September 30, 2022. At
December 31, 2022, the Twin Cities Area industrial segment of Artis's portfolio was 85.9% occupied, compared to 90.2% at September 30, 2022.
During 2023, 162,733 square feet come up for renewal, which represents 1.1% of the total portfolio GLA; 19.5% was renewed or committed to new
leases at December 31, 2022. Of Artis's total Twin Cities Area industrial GLA, 50.1% expires in 2027 or later.
Greater Phoenix Area Office Segment
The Greater Phoenix Area office segment represents 7.1% of Q4-22 net operating income and 5.4% of the overall portfolio by GLA. Overall direct
vacancy in the Greater Phoenix Area office market, as reported by CBRE, was 23.9% at December 31, 2022, compared to 22.2% at September 30, 2022.
At December 31, 2022, the Greater Phoenix Area office segment of Artis's portfolio was 90.1% occupied, increased from 88.5% at September 30, 2022.
During 2023, 100,762 square feet come up for renewal, which represents 0.7% of the total portfolio GLA; 43.9% was renewed or committed to new
leases at December 31, 2022. Of Artis's total Greater Phoenix Area office segment GLA, 46.8% expires in 2027 or later.
Greater Houston Area Industrial Segment
The Greater Houston Area industrial segment represents 6.8% of Q4-22 net operating income and 10.8% of the overall portfolio by GLA. The
availability rate in the Greater Houston Area industrial market, as reported by CBRE, was 6.0% at December 31, 2022, compared to 6.6% at September
30, 2022. At December 31, 2022, the Greater Houston Area industrial segment of Artis's portfolio was 98.1% occupied, increased from 95.6% at
September 30, 2022. During 2023, no leases come up for renewal in this segment. Of Artis's total Greater Houston Area industrial segment GLA, 90.2%
expires in 2027 or later.
52 | Artis Real Estate Investment Trust
2022 Annual Report | 53
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
FINANCIAL & OPERATING RESULTS
NET OPERATING INCOME
Three months ended
December 31,
Year ended
December 31,
2022
2021
2022
2021
Rental revenue from investment properties
Rental income
$
97,905
$
99,186
$
389,041
$
Tenant inducements amortized to revenue
Straight-line rent adjustments
Lease termination income
Condominium sales (1)
(6,301)
424
2,074
—
(5,938)
303
2,104
2,010
(25,405)
1,379
7,497
—
420,123
(24,765)
3,405
2,875
17,861
Property operating and realty tax expenses
Condominium cost of sales (1)
41,725
—
40,776
1,462
162,532
—
165,676
16,038
Net operating income
$
52,377
$
55,427
$
209,980
$
237,785
94,102
97,665
372,512
419,499
(1) In 2021, the REIT completed the conversion of an industrial property to commercial condominium units and all units were sold during the year.
Rental income is revenue earned from tenants primarily related to lease agreements.
Tenant inducement costs are amortized over the term of the tenant's lease.
Rent steps and lease termination income (if it is likely the tenant will exercise the lease termination option) are accounted for by straight-lining the
incremental increases and lease termination payments over the entire non-cancelable lease term, including the tenant fixturing period.
Lease termination income relates to payments received from tenants where the REIT and the tenant agreed to terminate a lease prior to the
contractual expiry date. Lease termination income is common in the real estate industry, however, it is unpredictable and period-over-period changes
are not indicative of trends.
Property operating expenses include costs related to interior and exterior maintenance, insurance, utilities and property management expenses. Also
included in property operating expenses is bad debt expense of $1,189 (Q4-22 - $561) in 2022 compared to $574 (Q4-21 - $188) in 2021.
Net Operating Income by Asset Class
Canada:
Industrial
Office
Retail
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Three months ended
December 31,
Year ended
December 31,
2022
2021
Change
2022
2021
Change
$
5,336 $
6,275 $
(939)
$
21,764 $
35,077 $
4,999
10,579
20,914
11,276
20,151
31,427
16,612
25,150
10,579
52,341
7,589
11,226
25,090
11,482
18,847
30,329
17,757
26,436
11,226
55,419
(2,590)
(647)
(4,176)
(206)
1,304
1,098
(1,145)
(1,286)
(647)
(3,078)
22,704
43,174
87,642
45,969
76,272
122,241
67,733
98,976
43,174
209,883
34,098
47,443
116,618
46,878
74,186
121,064
81,955
108,284
47,443
237,682
(13,313)
(11,394)
(4,269)
(28,976)
(909)
2,086
1,177
(14,222)
(9,308)
(4,269)
(27,799)
REIT
36
8
28
97
103
(6)
Net operating income
$
52,377 $
55,427 $
(3,050)
$
209,980 $
237,785 $
(27,805)
In Q4-22, the Canadian industrial segment was primarily impacted by a disposition and condominium sales in Q4-21. The Canadian office segment was
impacted by dispositions and increased vacancy at a property in Winnipeg, Manitoba. The U.S. office segment increased due to lease termination
income and increased occupancy in certain properties, partially offset by dispositions in 2022.
The U.S. portfolio was also impacted by the effect of foreign exchange.
Canadian Portfolio (Q4-22)
U.S. Portfolio (Q4-22)
Total Portfolio (Q4-22)
Industrial
25.5%
Industrial
35.9%
Retail
50.6%
Office
23.9%
Office
64.1%
Industrial
31.7%
Retail
20.2%
Office
48.1%
Canadian Portfolio (Q4-21)
U.S. Portfolio (Q4-21)
Total Portfolio (Q4-21)
Industrial
25.0%
Industrial
37.9%
Retail
20.3%
Industrial
32.0%
Retail
44.7%
Office
30.3%
Office
62.1%
Office
47.7%
54 | Artis Real Estate Investment Trust
2022 Annual Report | 55
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Net Operating Income by Geographical Region
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
U.S.:
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
Three months ended
December 31,
Year ended
December 31,
2022
2021
Change
2022
2021
Change
$
8,472 $
1,459
8,089
629
2,265
20,914
6,981
2,632
11,231
264
3,565
6,754
31,427
8,866 $
1,512
10,008
2,372
2,332
25,090
5,303
2,863
12,983
454
2,138
6,588
30,329
(394)
$
35,517 $
40,696 $
(53)
(1,919)
(1,743)
(67)
(4,176)
1,678
(231)
(1,752)
(190)
1,427
166
1,098
5,817
34,189
3,303
8,816
87,642
23,928
10,764
50,418
1,668
10,173
25,290
122,241
5,893
39,065
18,991
11,973
116,618
23,938
8,194
53,486
1,993
8,476
24,977
121,064
(5,179)
(76)
(4,876)
(15,688)
(3,157)
(28,976)
(10)
2,570
(3,068)
(325)
1,697
313
1,177
Total portfolio
52,341
55,419
(3,078)
209,883
237,682
(27,799)
REIT
36
8
28
97
103
(6)
Net operating income
$
52,377 $
55,427 $
(3,050)
$
209,980 $
237,785 $
(27,805)
In Q4-22, net operating income in Ontario and Minnesota was impacted by dispositions. Net operating income decreased in Manitoba due to
increased vacancy in certain properties. Net operating income increased in Arizona due to increased occupancy and increased in Texas due to the
acquisition of Park 8Ninety II.
The U.S. portfolio was also impacted by the effect of foreign exchange.
Total Portfolio (Q4-22)
Total Portfolio (Q4-21)
WI 12.9%
AB 16.2%
WI 11.9%
TX 6.8%
NY 0.5%
MN 21.5%
BC 2.8%
TX 3.9%
NY 0.8%
MB 15.5%
MN 23.4%
ON 1.2%
SK 4.3%
CO 5.0%
AZ 13.3%
CO 5.2%
AZ 9.6%
AB 16.0%
BC 2.7%
MB 18.0%
ON 4.3%
SK 4.2%
Same Property NOI Analysis
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's portfolio of investment properties and investment properties held in equity accounted investments. 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.
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,
2022
2021
Change
%
Change
Year ended
December 31,
2022
2021
Change
%
Change
Net operating income
$
52,377 $
55,427
$ 209,980 $ 237,785
Add (deduct) net operating income from:
Joint venture arrangements
1,548
Dispositions and unconditional dispositions
(3,273)
(Re)development properties
360
2,202
(7,592)
163
Lease termination income adjustments
(1,673)
(2,066)
Disposition of condominium units
Other
—
(135)
(548)
(197)
8,886
(4,058)
1,402
(6,065)
—
(367)
8,845
(27,502)
649
(2,469)
(1,823)
(3,642)
Straight-line rent adjustments (1)
Tenant inducements amortized to revenue (1)
(450)
6,098
(473)
5,205
(1,706)
25,545
(4,341)
22,052
(3,173)
(8,038)
(202)
(25,942)
Same Property NOI
$
54,852 $
52,121 $
2,731
5.2 % $ 233,617 $ 229,554 $
4,063
1.8 %
(1) Includes joint venture arrangements.
Same Property NOI by Asset Class
Three months ended
December 31,
2022
2021
Change
%
Change
Year ended
December 31,
2022
2021
Change
%
Change
Industrial
Office
Retail
$
14,713 $
13,678 $
28,921
11,218
27,020
11,423
1,035
1,901
7.6 %
7.0 %
(205)
(1.8) %
$
75,185 $
72,419 $
113,145
45,287
111,851
45,284
2,766
1,294
3
3.8 %
1.2 %
0.0 %
Same Property NOI
$
54,852 $
52,121 $
2,731
5.2 %
$
233,617 $
229,554 $
4,063
1.8 %
Canada
U.S.
40.0%
60.0%
Canada
U.S.
45.2%
54.8%
56 | Artis Real Estate Investment Trust
2022 Annual Report | 57
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Three months ended
December 31,
2022
2021
Change
%
Change
Year ended
December 31,
2022
2021
Change
%
Change
Same Property Occupancy
Geographical Region
2022
2021
Asset Class
As at December 31,
Canada:
Industrial
Office
Retail
$
7,253 $
7,294 $
(41)
(0.6) %
$
29,437 $
29,210 $
6,723
11,218
7,607
11,424
(884)
(11.6) %
(206)
(1.8) %
28,969
45,287
31,640
45,285
227
(2,671)
2
0.8 %
(8.4) %
0.0 %
Total Canada
25,194
26,325
(1,131)
(4.3) %
103,693
106,135
(2,442)
(2.3) %
U.S.:
Industrial
Office
Total U.S.
5,494
16,344
5,065
15,402
429
942
8.5 %
6.1 %
35,335
64,640
34,482
63,983
853
657
2.5 %
1.0 %
21,838
20,467
1,371
6.7 %
99,975
98,465
1,510
1.5 %
Total in functional currency
47,032
46,792
240
0.5 %
203,668
204,600
(932)
(0.5) %
Foreign exchange
7,820
5,329
2,491
46.7 %
29,949
24,954
4,995
20.0 %
Same Property NOI
$
54,852 $
52,121 $
2,731
5.2 %
$
233,617 $
229,554 $
4,063
1.8 %
Same Property NOI by Geographical Region
Three months ended
December 31,
2022
2021
Change
%
Change
Year ended
December 31,
2022
2021
Change
%
Change
$
9,754 $
10,234 $
1,678
10,360
712
2,690
5,563
1,909
6,194
—
2,590
5,582
1,705
11,082
720
2,584
4,452
1,941
5,927
—
2,329
5,818
(480)
(27)
(722)
(8)
106
(4.7) %
(1.6) %
(6.5) %
(1.1) %
4.1 %
1,111
25.0 %
(32)
(1.6) %
267
—
261
4.5 %
— %
11.2 %
(236)
(4.1) %
$
40,151 $
41,361
$
(1,210)
(2.9) %
6,667
43,073
3,246
10,556
20,395
7,905
38,468
1,206
9,873
22,128
6,502
44,768
3,271
10,233
19,244
7,929
39,329
1,173
9,137
21,653
165
(1,695)
(25)
323
1,151
(24)
(861)
33
736
475
2.5 %
(3.8) %
(0.8) %
3.2 %
6.0 %
(0.3) %
(2.2) %
2.8 %
8.1 %
2.2 %
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
Total in functional currency
47,032
46,792
240
0.5 %
203,668
204,600
(932)
(0.5) %
Foreign exchange
7,820
5,329
2,491
46.7 %
29,949
24,954
4,995
20.0 %
Same Property NOI
$
54,852 $
52,121 $
2,731
5.2 %
$
233,617 $
229,554
$
4,063
1.8 %
As at December 31,
2022
2021
93.4 %
85.7 %
90.9 %
89.4 %
93.5 %
85.9 %
91.7 %
89.7 %
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Total Canada
U.S.:
Arizona
Colorado
Minnesota
Texas
Wisconsin
Total U.S.
Total
Industrial
Office
Retail
Total
85.0 %
92.1 %
91.3 %
100.0 %
98.6 %
90.2 %
95.3 %
87.7 %
84.0 %
97.1 %
83.6 %
88.7 %
89.4 %
86.6 %
93.5 %
90.8 %
100.0 %
98.6 %
90.5 %
94.6 %
88.4 %
84.1 %
97.1 %
85.0 %
88.9 %
89.7 %
INTEREST AND OTHER INCOME
Interest and other income was $18,944 (Q4-22 - $5,589) in 2022, compared to $1,885 (Q4-21 - $627) in 2021. The change is primarily due to distribution
income from preferred investments in the amount $15,713 (Q4-22 - $4,956) in 2022. Refer to the Preferred Investments section of this MD&A for further
details.
DISTRIBUTION INCOME FROM EQUITY SECURITIES
Distribution income from equity securities was $10,710 (Q4-22 - $4,440) in 2022, compared to $898 (Q4-21 - $552) in 2021. Refer to Equity Securities
section of this MD&A for further details.
INTEREST EXPENSE
Three months ended
December 31,
2022
2021
Change
%
Change
Year ended
December 31,
2022
2021
Change
%
Change
Mortgages and other loans (1)
$
8,239 $
7,795 $
Senior unsecured debentures
Credit facilities (1)
Preferred shares (1)
5,420
12,859
46
2,524
4,952
40
444
2,896
7,907
6
$
31,250 $
33,365 $
(2,115)
17,674
33,557
183
11,303
20,178
140
6,371
13,379
43
26,564
15,311
11,253
73.5 %
82,664
64,986
17,678
27.2 %
Foreign exchange
2,449
1,149
1,300
6,773
4,662
2,111
Total interest expense
$
29,013 $
16,460 $
12,553
76.3 %
$
89,437 $
69,648 $
19,789
28.4 %
(1) Amounts shown are in Canadian and US dollars.
During 2022, interest expense on mortgages and other loans was impacted by the repayment of mortgages upon disposition of investment properties
and the repayment of maturing mortgages, partially offset by increased interest expense on mortgages at variable rates. Interest expense on senior
unsecured debentures increased primarily due to the issuance of the Series E senior unsecured debentures in April 2022. Interest expense on credit
facilities increased primarily due to higher balances drawn on the revolving credit facilities during the year and fluctuations to variable interest rates.
Financing costs on mortgages and other loans, senior unsecured debentures and the credit facilities are netted against the related debt and amortized
on an effective interest basis over the expected term of the debt.
At December 31, 2022, the weighted-average effective interest rate on mortgages and other loans secured by properties, was 4.84%, compared to
3.31% at December 31, 2021. The weighted-average nominal interest rate on mortgages and other loans secured by properties at December 31, 2022,
was 4.46%, compared to 3.04% at December 31, 2021.
58 | Artis Real Estate Investment Trust
2022 Annual Report | 59
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
CORPORATE EXPENSES
FAIR VALUE (LOSS) GAIN ON FINANCIAL INSTRUMENTS
Three months ended
December 31,
2022
2021
Change
%
Change
Year ended
December 31,
2022
2021
Change
%
Change
Accounting, legal and consulting
$
Public company costs
Salaries and benefits
Depreciation of property and
equipment
General and administrative
427
340
508
312
171
$
723
688
1,545
343
248
$
(296)
(348)
(40.9) %
$
(50.6) %
(1,037)
(67.1) %
(31)
(77)
(9.0) %
(31.0) %
1,774
1,116
2,722
1,254
795
$
3,262
1,837
4,999
1,362
1,067
$
(1,488)
(45.6) %
(721)
(39.2) %
(2,277)
(45.5) %
(108)
(272)
(7.9) %
(25.5) %
Total corporate expenses
$
1,758
$
3,547
$
(1,789)
(50.4) %
$
7,661
$
12,527
$
(4,866)
(38.8) %
Corporate expenses in 2022 were $7,661 (Q4-22 - $1,758), or 2.1% (Q4-22 - 1.9%) of total revenues compared to $12,527 (Q4-21 - $3,547), or 3.0%
(Q4-21 - 3.6%) of total revenues in 2021.
Public company costs include public reporting costs, investor communication costs and trustee fees and expenses. Trustees fees include a fair value
gain on unit-based compensation of $577 (Q4-22 - gain of $100) in 2022 compared to a fair value loss of $131 (Q4-21 - loss of $71) in 2021.
Salaries and benefits include a fair value gain on unit-based compensation of $484 (Q4-22 - gain of $147) in 2022 compared to a fair value loss of $511
(Q4-21 - loss of $138) in 2021.
Unit-based compensation was impacted by fluctuations in Artis's unit price during the period.
EQUITY SECURITIES EXPENSES
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 $19,525 (Q4-22 - gain of $283) in 2022, compared to
an unrealized gain of $15,966 (Q4-21 - gain of $5,708) in 2021. The REIT anticipates holding the mortgages and related interest rate swap contracts
until maturity.
In conjunction with the Business Transformation Plan, the REIT commenced purchasing equity securities during 2021. The REIT recorded a fair value
loss on equity securities of $41,432 (Q4-22 - gain of $17,656) in 2022, compared to a gain of $5,320 (Q4-21 - gain of $5,864) in 2021.
FOREIGN CURRENCY TRANSLATION (LOSS) GAIN
Artis held certain US dollar denominated monetary assets and liabilities, including cash 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 $6,683 (Q4-22 - gain of $1,583) in 2022, compared to a loss of $3,244
(Q4-21 - gain of $473) in 2021.
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 related to the Canadian investment
properties. The REIT's investment in Iris as part of the Cominar Transaction is through a taxable subsidiary subject to current and deferred 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.
The REIT invests in equity securities of publicly-traded Canadian real estate entities. In connection with these investments, the REIT incurred
commissions, service and professional fees of $1,890 (Q4-22 - $759) in 2022, compared to $186 (Q4-21 - $95) in 2021.
Income tax (recovery) expense comprised of:
Included in equity securities expenses are fees paid to Sandpiper. Refer to the Related Party Transactions section of this MD&A for further details.
FAIR VALUE (LOSS) GAIN ON INVESTMENT PROPERTIES
The changes in fair value on investment properties, period-over-period, are recognized as fair value gains and losses in the consolidated statement of
operations. Fair values of the investment properties are determined through either the discounted cash flow method or the overall capitalization
method. External valuations are performed for a selection of properties representing various geographical regions and asset classes across the REIT's
portfolio. Fair value changes in individual properties result from changes in the projected income and cash flow projections of those properties, as well
as from changes in capitalization rates and discount rates applied. In 2022, the fair value loss on investment properties was $178,431 (Q4-22 - loss of
$156,533), compared to a gain of $197,511 (Q4-21 - gain of $9,247) in 2021. The fair value loss in 2022 was primarily due to rising interest rates exerting
upward pressure on capitalization rates in markets across both Canada and the U.S.
Fair Value (Loss) Gain on Investment Properties by Asset Class
Current income tax expense
Deferred income tax (recovery) expense, net
Income tax (recovery) expense
Three months ended
December 31,
Year ended
December 31,
2022
2021
2022
2021
421
$
(6,315)
436
(38)
$
735
$
1,332
13,620
(43)
(5,894)
$
398
$
14,355
$
1,289
$
$
The deferred tax expense recorded in 2022 was primarily due to the bargain purchase gain related to the acquisition of Cominar by Iris, partially offset
by the REIT's share of net loss of Iris in 2022. The deferred taxes are recorded at the undistributed rate of tax. Actual taxes payable are expected to be
reduced due to the benefit of dividend refunds.
Three months ended
December 31, 2022
Year ended
December 31, 2022
OTHER COMPREHENSIVE INCOME (LOSS)
Canada:
Industrial
Office
Retail
Residential
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Residential
Total portfolio
$
(8,018) $
(49,894)
(18,551)
(9,744)
(86,207)
(28,136)
(42,190)
(70,326)
(36,154)
(92,084)
(18,551)
(9,744)
$
(156,533) $
(4,217)
(56,432)
6,254
(12,138)
(66,533)
26,190
(138,088)
(111,898)
21,973
(194,520)
6,254
(12,138)
(178,431)
Other comprehensive income includes unrealized foreign currency translation gains of $110,831 (Q4-22 - losses of $19,358) in 2022, compared to losses
of $1,473 (Q4-21 - losses of $7,469) in 2021. Foreign currency translation gains and losses relate to the REIT's net investments in its U.S. subsidiaries.
60 | Artis Real Estate Investment Trust
2022 Annual Report | 61
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
FUNDS FROM OPERATIONS ("FFO") AND ADJUSTED FUNDS FROM OPERATIONS ("AFFO")
FFO and AFFO are non-GAAP measures. Management considers FFO and AFFO to be valuable recurring earnings measures for evaluating the REIT's
operating performance. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section of this MD&A.
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,
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.
In addition, the REIT includes the realized gains and losses on the disposition of equity securities (and excludes the unrealized gains or losses of equity
securities) in its calculation of FFO and AFFO. The REIT also adjusted FFO and AFFO for strategic initiative expenses for a total of $18 for 2021.
Although these adjustments to arrive at FFO and AFFO are not in accordance with the guidelines set out by REALpac as issued in January 2022,
management believes the resulting FFO and AFFO provide a better representation of recurring operating performance.
000's, except per unit amounts
2022
2021
Change
Three months ended
December 31,
%
Change
Year ended
December 31,
2022
2021
Change
%
Change
Net (loss) income
Add (deduct):
Tenant inducements amortized to
revenue
Incremental leasing costs
Distributions on preferred shares
treated as interest expense
Transaction costs
Strategic initiative expenses
Remeasurement component of unit-
based compensation
Adjustments for equity accounted
investments
Fair value loss (gain) on investment
properties
Fair value (gain) loss on financial
instruments
$ (128,301) $
60,404
$
(5,294) $ 389,175
6,301
368
63
—
—
(435)
5,938
749
50
—
—
28
25,405
2,695
24,765
3,000
240
—
—
176
11
18
(1,725)
(63)
156,533
(9,247)
178,431
(197,511)
(18,075)
(11,302)
21,130
(21,224)
Realized gain on disposition of equity
securities
Foreign currency translation (gain) loss
Deferred income tax (recovery) expense
Preferred unit distributions
740
(1,583)
(6,315)
(3,077)
—
(473)
(38)
(4,294)
1,602
6,683
13,620
—
3,244
(43)
(15,856)
(17,260)
FFO
Add (deduct):
$
35,430
$
40,323 $
(4,893)
(12.1) %
$ 164,791 $ 174,343 $
(9,552)
(5.5) %
Amortization of recoverable capital
expenditures
$
(2,393) $
(2,953)
Straight-line rent adjustments
(424)
(303)
Non-recoverable property
maintenance reserve
Leasing costs reserve
Adjustments for equity accounted
investments
(850)
(7,900)
(1,100)
(7,900)
$
(8,180) $
(9,848)
(1,379)
(3,405)
(4,150)
(4,400)
(31,900)
(31,600)
(1,816)
(148)
(6,630)
(614)
Actual capital expenditures are by nature variable. 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 joint venture arrangements. Approximately 71.7% (Q4-22 - 66.8%) is
recoverable from tenants in 2022, compared to 76.2% (Q4-21 - 73.2%) in 2021. The non-recoverable property maintenance reserve reflects
management's estimate of a normalized expenditure using the 2019, 2020, 2021 and 2022 actual expenditures and the 2023 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 valuable recurring earnings measures for evaluating the REIT's operating performance.
The following reconciles the weighted-average number of basic common units to diluted common units:
Basic units
Add:
Restricted units
Deferred units
Diluted units
Three months ended
December 31,
Year ended
December 31,
2022
2021
2022
2021
115,781,374
124,637,757
117,932,876
129,553,433
399,997
202,914
414,281
133,552
356,076
180,635
366,757
105,727
116,384,285
125,185,590
118,469,587
130,025,917
000's, except per unit amounts
2022
2021
Change
Three months ended
December 31,
%
Change
Year ended
December 31,
2022
2021
Change
%
Change
FFO per unit:
Basic
Diluted
AFFO per unit:
Basic
Diluted
$
0.31 $
0.32 $
0.30
0.32
(0.01)
(0.02)
(3.1) %
(6.3) %
$
1.40 $
1.35 $
1.39
1.34
0.05
0.05
3.7 %
3.7 %
$
0.19 $
0.22 $
0.19
0.22
(0.03)
(0.03)
(13.6) %
$
0.95 $
0.96 $
(13.6) %
0.95
0.96
(0.01)
(0.01)
(1.0) %
(1.0) %
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.
29,211
(1,492)
(62,140)
(9,945)
FFO and AFFO per Unit
AFFO
$
22,047
$
27,919 $
(5,872)
(21.0) %
$ 112,552 $ 124,476 $
(11,924)
(9.6) %
FFO in 2022 was primarily impacted by an increase in interest and other income due to the preferred investment as part of the Cominar Transaction,
increased distribution income from equity securities, an increase in income from equity accounted investments primarily due to the investment in
common units as part of the Cominar Transaction and realized gains on the sale of equity securities, partially offset by decreased net operating income
as a result of dispositions completed in 2021 and 2022 and increased interest expense.
62 | Artis Real Estate Investment Trust
2022 Annual Report | 63
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
FFO and AFFO Payout Ratios
Capital Expenditures by Type
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 (excluding any Special Distributions) 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.
Distributions per common unit (1)
FFO per unit
FFO payout ratio
Distributions per common unit (1)
AFFO per unit
AFFO payout ratio
Three months ended
December 31,
2022
2021
%
Change
Year ended
December 31,
2022
2021
%
Change
$
$
$
0.15
0.30
0.15
0.32
50.0 %
46.9 %
3.1 %
$
0.15
0.19
0.15
0.22
$
$
$
0.60
1.39
0.59
1.34
43.2 %
44.0 %
(0.8) %
$
0.60
0.95
0.59
0.96
78.9 %
68.2 %
10.7 %
63.2 %
61.5 %
1.7 %
Building improvements are capital expenditures that increase the long-term value or revenue generating potential of the property. These
expenditures include costs to modernize or upgrade existing properties. Property maintenance costs are capital expenditures to repair or replace
components of existing properties such as roofs, HVAC units and parking lots.
Three months ended
December 31,
2022
2021
Change
%
Change
Year ended
December 31,
2022
2021
Change
%
Change
$
8,372 $
17,870 $
(9,498)
$
60,340 $
69,008 $
(8,668)
419
4,020
918
1,740
(499)
2,280
1,704
15,805
2,150
11,548
(446)
4,257
1,477
544
1,429
112
48
432
5,821
3,292
4,945
2,919
876
373
New and (re)development
expenditures
Building improvements
expenditures:
Recoverable from tenants
Non-recoverable
Property maintenance
expenditures:
Recoverable from tenants
Non-recoverable
(1) Excludes the Special Distribution declared in December 2021 and December 2022.
Total capital expenditures
$
14,832 $
22,069 $
(7,237)
(32.8) %
$
86,962 $
90,570 $
(3,608)
(4.0) %
FINANCIAL POSITION
ASSETS
Investment Properties, Investment Properties Under Development and Investment Properties Held for Sale
Artis's total investment properties are as follows:
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, 2021
Additions:
Acquisition
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
Dispositions
Foreign currency translation gain
Fair value loss
Balance, December 31, 2022
(1) On September 30, 2022, the REIT increased its ownership interest in Park 8Ninety II to 100%.
(2) During 2022, interest was capitalized to investment properties under development at a weighted-average effective interest rate of 4.60%.
December 31,
2022
December 31,
2021
$
$
3,156,206 $
3,741,544
191,552
335,813
195,161
62,904
3,683,571 $
3,999,609
$
3,999,609
5,219
98,930
26,622
60,340
1,346
12,055
1,379
11,140
(504,929)
150,291
(178,431)
$
3,683,571
Capital Expenditures by Asset Class
Three months ended
December 31,
%
Year ended
December 31,
%
2022
2021
Change
Change
2022
2021
Change Change
Canada:
Industrial
Office
Retail
Residential
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Residential
$
104 $
391 $
2,663
293
4,851
7,911
1,950
4,971
6,921
2,054
7,634
293
4,851
1,808
1,114
11,477
14,790
6,531
748
7,279
6,922
2,556
1,114
11,477
(287)
855
(821)
(6,626)
(6,879)
(4,581)
4,223
(358)
(4,868)
5,078
(821)
(6,626)
$
623
$
1,677 $
(1,054)
7,439
1,194
32,226
41,482
29,861
15,619
45,480
30,484
23,058
1,194
32,226
6,796
1,816
55,768
66,057
16,371
8,142
24,513
18,048
14,938
1,816
55,768
643
(622)
(23,542)
(24,575)
13,490
7,477
20,967
12,436
8,120
(622)
(23,542)
Total portfolio
$
14,832 $
22,069 $
(7,237)
(32.8) %
$
86,962
$
90,570 $
(3,608)
(4.0) %
In 2022, new and (re)development expenditures included $32,226 for 300 Main, and $27,918 for Blaine 35 I and Blaine 35 II.
In 2021, new and (re)development expenditures included $55,768 for 300 Main, $12,773 for Blaine 35 I and Blaine 35 II.
64 | Artis Real Estate Investment Trust
2022 Annual Report | 65
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Leasing Costs by Type
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.
Three months ended
December 31,
2022
2021
Change
%
Change
Year ended
December 31,
2022
2021
Change
%
Change
Investment property leasing
costs:
Investment properties held for sale
At December 31, 2022, the REIT had one office property, one retail property and one parcel of development land located in Canada and 10 industrial
properties, three office properties, two industrial properties under development and one parcel of development land located in the U.S. with an
aggregate fair value of $335,813, classified as held for sale. These properties were actively marketed for sale or under conditional sale agreements at
December 31, 2022.
Foreign currency translation gain on investment properties
In 2022, the foreign currency translation gain on investment properties was $150,291 due to the change in the year end US dollar to Canadian dollar
exchange rate from 1.2678 at December 31, 2021 to 1.3544 at December 31, 2022.
Fair value (loss) gain on investment properties
Tenant inducements
$
6,816 $
7,955 $
Leasing commissions
2,578
3,798
(1,139)
(1,220)
$
34,421 $
25,718 $
11,552
8,799
8,703
2,753
During 2022, the REIT recorded a loss on the fair value of investment properties of $178,431 (Q4-22 - loss of $156,533), compared to a gain of $197,511
(Q4-21 - gain of $9,247) in 2021. The fair value loss in 2022 was primarily due to rising interest rates exerting upward pressure on capitalization rates in
markets across both Canada and the U.S.
Investment property
(re)development related
leasing costs:
Tenant inducements
Leasing commissions
1,210
304
951
910
259
(606)
2,124
503
2,623
1,006
(499)
(503)
Total leasing costs
$
10,908 $
13,614 $
(2,706)
(19.9) %
$
48,600 $
38,146 $
10,454
27.4 %
Leasing Costs by Asset Class
Three months ended
December 31,
2022
2021
Change
%
Change
Year ended
December 31,
2022
2021
Change
%
Change
Canada:
Industrial
Office
Retail
Residential
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Residential
$
525 $
209 $
366
352
—
1,243
3,217
6,448
9,665
3,742
6,814
352
—
2,534
1,157
920
4,820
4,091
4,703
8,794
4,300
7,237
1,157
920
316
(2,168)
(805)
(920)
(3,577)
(874)
1,745
871
(558)
(423)
(805)
(920)
$
2,463 $
3,395 $
1,802
3,183
448
7,896
9,381
31,323
40,704
11,844
33,125
3,183
448
7,788
5,256
920
17,359
7,643
13,144
20,787
11,038
20,932
5,256
920
(932)
(5,986)
(2,073)
(472)
(9,463)
1,738
18,179
19,917
806
12,193
(2,073)
(472)
Total leasing costs
$
10,908 $
13,614 $
(2,706)
(19.9) %
$
48,600 $
38,146 $
10,454
27.4 %
In 2022, leasing costs included $8,027 for two office tenants in the Twin Cities Area, Minnesota, $6,959 for one office tenant in the Greater Phoenix
Area, Arizona, and $3,082 for an office tenant in Madison, Wisconsin. Leasing costs related to new and (re)developments included $1,877 for three
industrial tenants in the Twin Cities Area, Minnesota and $751 for three retail tenants in Winnipeg, Manitoba.
Acquisition
During 2022, the REIT acquired the remaining 5% interest in Park 8Ninety II, an industrial property located in the Greater Houston Area, Texas, for total
consideration of US$2,508. The REIT now owns 100% of the property.
Artis determines the fair value of investment properties based upon either the discounted cash flow method or the overall capitalization method.
Capitalization rates are estimated using market surveys, available appraisals and market comparables. Under the overall capitalization method, year
one income is stabilized and capitalized at a rate deemed appropriate for each investment property. Individual properties were valued using
capitalization rates in the range of 3.75% to 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.
Capitalization Rates
December 31, 2022
December 31, 2021
Maximum
Minimum
Weighted-
average
Maximum
Minimum
Weighted-
average
Industrial:
Canadian industrial portfolio
U.S. industrial portfolio
8.50 %
7.75 %
3.75 %
5.00 %
6.23 %
5.49 %
7.75 %
7.75 %
3.50 %
4.50 %
5.76 %
5.74 %
Total industrial portfolio
8.50 %
3.75 %
5.81 %
7.75 %
3.50 %
5.75 %
Office:
Canadian office portfolio
U.S. office portfolio
8.25 %
8.25 %
4.25 %
6.25 %
6.21 %
7.35 %
7.75 %
8.00 %
4.75 %
6.00 %
5.99 %
7.00 %
Total office portfolio
8.25 %
4.25 %
6.94 %
8.00 %
4.75 %
6.61 %
Retail:
Canadian retail portfolio
8.75 %
6.00 %
6.65 %
8.75 %
5.50 %
6.54 %
Total retail portfolio
8.75 %
6.00 %
6.65 %
8.75 %
5.50 %
6.54 %
Residential:
Canadian residential portfolio
4.50 %
4.50 %
4.50 %
4.50 %
4.50 %
4.50 %
Total residential portfolio
4.50 %
4.50 %
4.50 %
4.50 %
4.50 %
4.50 %
Total:
Canadian portfolio
U.S. portfolio
8.75 %
8.25 %
3.75 %
5.00 %
6.20 %
6.66 %
8.75 %
8.00 %
3.50 %
4.50 %
6.00 %
6.49 %
Dispositions
Total portfolio
8.75 %
3.75 %
6.40 %
8.75 %
3.50 %
6.22 %
During 2022, Artis sold 19 industrial properties and five office properties for an aggregate sale price of $514,148. The sale proceeds, net of costs of
$8,592 and related debt of $164,821, were $340,735.
Preferred Investments
Completed new development
During 2022, Artis completed the development of Blaine 35 I, an industrial property located in the Twin Cities Area, Minnesota. Refer to the Portfolio
Summary section for further details.
At December 31, 2022, the REIT had preferred investments of $114,184, compared to $nil at December 31, 2021. The change is due to the junior
preferred units acquired as part of the Cominar Transaction in the amount of $100,000 and additional junior preferred units received in-kind for interest
income in the amount of $14,184. This preferred investment carries a rate of return of 18.0% per annum.
66 | Artis Real Estate Investment Trust
2022 Annual Report | 67
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Equity Securities
At December 31, 2022, the REIT had investments in equity securities of $316,768, compared to $77,186 at December 31, 2021.
The change in equity securities is a result of the following:
Balance, December 31, 2021
Purchases
Dispositions
Reclassification to equity accounted investments (1)
Fair value loss
Balance, December 31, 2022
(1) Refer to Participation in Investor Group to Acquire Cominar REIT section of this MD&A for further details.
Notes Receivable
$
77,186
335,971
(41,469)
(13,488)
(41,432)
$
316,768
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. This note receivable was repaid subsequent to year end.
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, 2022 was $38,695, compared to $36,282 at December 31, 2021.
Accounts Receivable
At December 31, 2022, Artis had accounts receivable outstanding as follows:
Rents receivable
Deferred rents receivable
Allowance for doubtful accounts
Accrued recovery income
Other receivables
Rent Deferrals
$
December 31,
December 31,
$
2022
5,229
238
(2,187)
3,470
10,557
2021
5,578
955
(1,717)
3,181
6,799
$
17,307
$
14,796
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, 2022, the outstanding balance of rent deferrals granted to tenants was $238, compared to $955 at December 31, 2021.
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, 2022, an allowance for doubtful accounts in the amount of $2,187 was recorded, compared to $1,717 at
December 31, 2021.
Cash
At December 31, 2022, the REIT had $29,168 of cash on hand, compared to $221,474 at December 31, 2021. 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, 2022 was 1.6 years, compared to 2.3 years at December 31, 2021.
At December 31, 2022, Artis had mortgages and loans payable outstanding, as follows:
Canada
U.S.
Total Portfolio
December 31,
2022
December 31,
2021
December 31,
2022
December 31,
2021
December 31,
2022
December 31,
2021
Fixed rate mortgages
$
285,848 $
348,186
$
48,750 $
46,524
$
334,598 $
394,710
Variable rate mortgages:
Hedged
Unhedged
Net above- and below-
market mortgage
adjustments
Financing costs
25,575
4,097
—
(1,476)
60,124
4,532
—
(1,588)
191,561
310,905
347,392
280,763
217,136
315,002
407,516
285,295
782
(1,344)
1,604
(2,498)
782
(2,820)
1,604
(4,086)
$
314,044 $
411,254
$
550,654 $
673,785
$
864,698 $
1,085,039
At December 31, 2022, unhedged variable rate mortgage debt as a percentage of total debt, including credit facilities and debentures was 14.2%,
compared to 14.5% at December 31, 2021. 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.
Mortgages and Loans Payable by Asset Class
Canadian portfolio:
Industrial
Office
Retail
U.S. portfolio:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Total portfolio
December 31,
2022
December 31,
2021
$
52,618 $
51,041
211,861
315,520
162,900
388,316
551,216
215,518
439,357
211,861
57,479
69,081
286,282
412,842
278,519
396,160
674,679
335,998
465,241
286,282
$
866,736 $
1,087,521
68 | Artis Real Estate Investment Trust
2022 Annual Report | 69
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
The change in total mortgages and loans payable is a result of the following:
Balance, December 31, 2021
Add (deduct):
New fixed rate mortgage
Assumed variable rate mortgage on acquisition of investment property
Draws on construction loan
Partial repayment of variable rate mortgage
Partial repayment of hedged mortgage
Repayment of fixed rate mortgages
Repayment of hedged mortgages
Repayment of variable rate mortgages
Repayment of hedged mortgages upon disposition of investment properties
Repayment of variable mortgage upon disposition of investment property
Principal repayments
Foreign currency translation loss
Balance, December 31, 2022
During 2022, Artis also renewed two mortgages in the amount of US$62,101.
Senior Unsecured Debentures
Artis has two series of senior unsecured debentures outstanding, as follows:
Issued
Maturity
Interest rate
December 31, 2022
December 31, 2021
Carrying
value
Face
value
Carrying
value
Face
value
Series D
Series E
September 18, 2020
September 18, 2023
April 29, 2022
April 29, 2025
3.824 %
5.600 %
$
249,723 $
250,000
$
249,346 $
250,000
199,368
200,000
—
—
$
449,091 $
450,000
$
249,346 $
250,000
At December 31, 2022, the carrying value of the senior unsecured debentures increased $199,745 compared to December 31, 2021. The change is
primarily due to the issuance of the Series E senior unsecured debentures on April 29, 2022.
Credit Facilities
Revolving Credit Facilities
The REIT has unsecured revolving credit facilities in the aggregate amount of $700,000. On December 1, 2022, 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, 2022 to
December 14, 2024. 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, 2022, there was $601,934 drawn on these facilities (December 31, 2021, $131,851).
Non-Revolving Credit Facilities
The REIT has unsecured non-revolving credit facilities, as outlined in the table below.
Non-revolving facility maturing February 1, 2023
Non-revolving facility maturing February 6, 2023
Non-revolving facility maturing July 18, 2023
(1) The applicable interest rate is banker's acceptance rate plus 1.70% or prime rate plus 0.70%.
(2) The applicable interest rate is banker's acceptance rate plus 1.60% or prime rate plus 0.60%. .
(3) The applicable interest rate is banker's acceptance rate plus 1.70% or prime rate plus 0.70%.
Interest Rate
Variable (1)
Variable (2)
Variable (3)
December 31,
2022
December 31,
2021
$
$
50,000
$
100,000
150,000
150,000
200,000
150,000
300,000
$
500,000
$
1,087,521
24,000
37,703
28,259
(6,913)
(8,420)
(73,753)
(47,517)
(29,165)
(113,760)
(51,061)
(25,380)
45,222
On February 4, 2022, the REIT repaid $100,000 of the $200,000 non-revolving credit facility that matured on that date and entered into an amended
agreement for the remaining balance of $100,000 with a maturity date of February 6, 2023. On May 31, June 27, August 8, and December 1, 2022, the
REIT entered into amended agreements for the other two unsecured non-revolving term credit facilities in the aggregate amount of $300,000 with the
maturity dates extended to December 1, 2022 and July 18, 2023. On December 1, 2022, the REIT entered into an amended agreement to repay
$50,000 of the $150,000 non-revolving credit facility that matured on that date and extend the maturity dates of the remaining balance. A further
repayment of $50,000 was made on December 30, 2022 with the remaining $50,000 maturing on February 1, 2023. Refer to Subsequent Events section
of the MD&A for further amended agreements subsequent to December 31, 2022.
Accounts Payable & Other Liabilities
Included in accounts payable and other liabilities was accrued distributions payable to unitholders of $16,247, which were paid subsequent to
December 31, 2022.
UNITHOLDERS' EQUITY
Unitholders' equity decreased overall by $226,194 between December 31, 2021 and December 31, 2022. The overall decrease was primarily due to
distributions made to unitholders of $145,094, the redemption of preferred units in the amount of $81,208, $123,520 of common units and $5,073 of
preferred units purchased through the NCIB, partially offset by contributed surplus of $22,934 and by net loss of $5,294. The overall decrease was
partially offset by other comprehensive income of $110,831 and the issuance of common units of $230.
OTHER FINANCIAL MEASURES
$
866,736
The measures and ratios calculated below are non-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, 2022
December 31, 2021
Change
Unitholders' equity
Less face value of preferred equity
NAV attributable to common unitholders
Total number of dilutive units outstanding:
Common units
Restricted units
Deferred units
$
$
2,229,159
$
2,455,353 $
(226,194)
(212,547)
(299,017)
86,470
2,016,612
$
2,156,336 $
(139,724)
115,409,234
123,544,536
(8,135,302)
440,617
203,430
462,891
133,552
(22,274)
69,878
116,053,281
124,140,979
(8,087,698)
NAV per unit
$
17.38
$
17.37 $
0.01
Unitholders' equity decreased primarily due to distributions made to unitholders, units purchased under the NCIB, and by net loss, partially offset by
the foreign exchange gain recorded in other comprehensive income. 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 dividing secured
mortgages and loans by GBV.
Management considers secured mortgages and loans to GBV to be a valuable measure of the REIT's leverage.
70 | Artis Real Estate Investment Trust
2022 Annual Report | 71
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Total assets
Add: accumulated depreciation
Gross book value
Secured mortgages and loans
December 31,
2022
December 31,
2021
$
4,553,913
$
4,576,024
10,585
9,275
4,564,498
4,585,299
$
864,698
$
1,085,039
Adjusted EBITDA Interest Coverage Ratio
Adjusted EBITDA interest coverage ratio is a non-GAAP measure.
The REIT calculates 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 expenses. The REIT 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.
Secured mortgages and loans to GBV
18.9 %
23.7 %
Management considers this ratio to be a valuable measure of Artis's ability to service the interest requirements on its outstanding debt.
Total Debt to GBV
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 dividing 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, 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,
2022
December 31,
2021
$
4,553,913
$
4,576,024
10,585
9,275
4,564,498
4,585,299
864,698
950
449,091
901,159
1,085,039
889
249,346
631,253
$
2,215,898
$
1,966,527
48.5 %
42.9 %
Unencumbered Assets to Unsecured Debt
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 investment properties held under joint venture arrangements, by total unsecured debt, which consists of
senior unsecured debentures and unsecured credit facilities.
Net (loss) income
Add (deduct):
Tenant inducements amortized to revenue
Straight-line rent adjustments
Depreciation of property and equipment
Transaction costs
Strategic initiative expenses
Net loss (income) from equity accounted investments
Distributions from equity accounted investments (1)
Interest expense
Fair value loss (gain) on investment properties
Fair value (gain) loss on financial instruments
Foreign currency translation (gain) loss
Income tax (recovery) expense
Adjusted EBITDA
Interest expense
Add (deduct):
Amortization of financing costs
Amortization of above- and below-market mortgages, net
Three months ended
December 31,
Year ended
December 31,
2022
2021
2022
2021
$
(128,301) $
60,404
$
(5,294) $
389,175
6,301
(424)
312
—
—
28,196
734
29,013
156,533
(18,075)
(1,583)
(5,894)
66,812
29,013
(787)
234
5,938
(303)
343
—
—
(3,276)
839
16,460
(9,247)
(11,302)
(473)
398
59,781
16,460
(814)
216
25,405
(1,379)
1,254
—
—
(74,659)
4,166
89,437
178,431
21,130
6,683
14,355
24,765
(3,405)
1,362
11
18
(16,795)
4,577
69,648
(197,511)
(21,224)
3,244
1,289
259,529
255,154
89,437
69,648
(3,177)
896
(3,334)
799
Adjusted interest expense
$
28,460 $
15,862
$
87,156 $
67,113
Adjusted EBITDA interest coverage ratio
2.35
3.77
2.98
3.80
Management considers this ratio to be useful as the REIT is required to maintain a minimum a ratio of 1.4 under the terms of its revolving credit
facilities. The availability to draw on the revolving credit facilities is limited by the total unencumbered assets.
(1) Excludes distributions from proceeds of the sale of investment properties.
Unencumbered assets
Unencumbered investment properties held under joint venture arrangements
Total unencumbered assets
Senior unsecured debentures
Unsecured credit facilities
Total unsecured debt
December 31,
2022
December 31,
2021
$
2,034,409 $
1,902,748
50,557
36,805
2,084,966
1,939,553
449,091
901,159
249,346
631,253
$
1,350,250 $
880,599
Unencumbered assets to unsecured debt
1.54
2.20
72 | Artis Real Estate Investment Trust
2022 Annual Report | 73
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
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's total outstanding debt.
Management considers this ratio to be a valuable measure of Artis's ability to meet financial obligations.
Secured mortgages and loans
Preferred shares liability
Carrying value of debentures
Credit facilities
Total debt
Quarterly Adjusted EBITDA
Annualized Adjusted EBITDA
Total debt to Adjusted EBITDA
EQUITY ACCOUNTED INVESTMENTS
INVESTMENT PROPERTIES
December 31,
2022
December 31,
2021
$
864,698 $
1,085,039
950
449,091
901,159
889
249,346
631,253
2,215,898
1,966,527
66,812
267,248
59,781
239,124
8.3
8.2
Below is a breakdown of Q4-22 net operating income by geographical region and asset class of the REIT's investment properties held under equity
accounted investments at the REIT's ownership interest:
Geographical Region
Asset Class
CO 21.2%
Office 18.2%
AB 49.4%
SK 21.9%
BC 7.5%
Canada
U.S.
78.8%
21.2%
Industrial 81.8%
Fair Value Gain (Loss) on Investment Properties
In 2022, the fair value gain on investment properties was $30,373 (Q4-22 - loss of $6,036), compared to a gain of $10,496 (Q4-21 - gain of $1,653) in
2021. The fair value gain in 2022 was primarily due to value creation at Park 8Ninety V, an industrial development project completed during the year.
The REIT has interests in the following investment properties held in equity accounted investments:
Other Expenses and Income, Net
Property
Park 8Ninety II
Park 8Ninety V
Corridor Park (1)
Investment
Type
Joint venture
Joint venture
Joint venture
Graham Portfolio
Joint venture
The Point at Inverness
Joint venture
Park Lucero East
Associate
(1) Corridor Park is a parcel of development land.
Property
Count
Location
Asset Class
Industrial
Industrial
Greater Houston Area, TX
Greater Houston Area, TX
Greater Houston Area, TX
Office
Various Cities, AB/BC/SK
Industrial
Greater Denver Area, CO
Office
Greater Phoenix Area, Arizona Industrial
—
1
—
8
1
—
Owned
Share of
GLA
—
640,467
—
243,109
95,199
—
Ownership Interest
December 31,
2022
December 31,
2021
100 %
95 %
90 %
75 %
50 %
10 %
95 %
95 %
90 %
75 %
50 %
10 %
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 2022, Artis acquired the remaining 5% of Park 8Ninety II and completed construction of the fifth and final phase of Park 8Ninety.
Artis also has 100% ownership in Park 8Ninety I, Park 8Ninety III and Park 8Ninety IV.
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. This
project is expected to comprise three Class A industrial buildings totalling approximately 561,000 square feet of leasable area.
At December 31, 2022, The Point at Inverness, an office property located in the Greater Denver Area, Colorado was classified as held for sale.
Financial and Operating Results
Net Operating Income
Revenue
Total operating expenses
Net operating income
Three months ended December 31,
Year ended December 31,
2022
2021
2022
2021
$
$
3,363 $
1,828
4,025 $
1,823
16,262 $
7,394
15,760
6,913
1,535 $
2,202 $
8,868 $
8,847
In 2022, other expenses and income, net, were $3,080 (Q4-22 - $640), compared to $2,548 (Q4-21 - $579) in 2021. The overall change is primarily due to
increased interest expense as a result of draws on construction loans and fluctuations to variable interest rates.
Financial Position
Investment properties held in equity accounted investments at the REIT's ownership interest consists of the following:
Investment properties
Investment properties under development
Investment properties held for sale
Total
December 31, 2022
December 31, 2021
$
$
212,794
$
12,452
19,303
233,635
47,024
—
244,549
$
280,659
The change in total investment properties held in equity accounted investments is a result of the following:
Balance, December 31, 2021
Additions:
Capital expenditures
Investment properties under development
Capitalized interest (1)
Leasing commissions
Straight-line rent adjustments
Tenant inducement additions, net of amortization
Reclassification from equity accounted investments (2)
Foreign currency translation gain
Fair value gain
Balance, December 31, 2022
(1) During 2022, interest was capitalized to investment properties under development at a weighted-average effective interest rate of 3.85%.
(2) On September 30, 2022, the REIT increased its ownership interest in Park 8Ninety II to 100%. As a result, Park 8Ninety II is no longer included in equity accounted investments.
$
280,659
17,703
140
1,936
488
687
(98,930)
11,493
30,373
$
244,549
74 | Artis Real Estate Investment Trust
2022 Annual Report | 75
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
At December 31, 2022, mortgages and loans payable at the REIT's ownership interest in investment properties held in equity accounted investments
were as follows:
Cash flow from operations represents the primary source of funds for distributions to unitholders and principal repayments on mortgages and loans.
LIQUIDITY AND CAPITAL RESOURCES
Fixed rate mortgages
Variable rate mortgages
Financing costs
December 31,
2022
December 31,
2021
$
$
29,312 $
35,406
(345)
41,044
54,035
(597)
64,373 $
94,482
The weighted-average term to maturity on mortgages and loans payable at the REIT's ownership interest in equity accounted investments was 1.9
years at December 31, 2022, unchanged from December 31, 2021.
OTHER INVESTMENTS
The REIT has interests in the following other investments held in equity accounted investments:
Investment
Investment Type
Purpose
Ownership Interest
December 31,
2022
December 31,
2021
ICE LP
ICE II LP
Joint venture
Joint venture
Investment in Iris Acquisition II LP
Investment in the asset manager of Iris Acquisition II LP
Iris Acquisition II LP
Associate
Investment in Cominar Real Estate Investment Trust
50.00 %
50.00 %
32.64 %
— %
— %
— %
On March 1, 2022, the REIT contributed $112,000 to acquire common equity units in Iris Acquisition II LP ("Iris"), an entity formed to acquire the
outstanding units of Cominar. The REIT's investment in 32.64% of the outstanding common equity units of Iris is determined to be an investment in an
associate on the basis of the REIT's significant influence over this investment through representation on the Board of Cominar and the Board of the
ultimate general partner of Iris.
In connection with the investment in Iris, the REIT, Sandpiper and an affiliate of Sandpiper entered into two joint ventures, ICE LP and ICE II LP. ICE LP
holds 33.33% interest in the ultimate general partner of Iris and certain equity interest in Iris with profit participation rights. ICE II LP holds 33.33%
interest in the asset manager of Cominar.
Under the asset management agreement, the asset manager earns a monthly fee of 1/12th of 1.75% of the net asset value of Iris. The asset
management agreement has an initial term of six years with an automatic renewal of one year thereafter.
In addition, the REIT acquired junior preferred units of Iris for $100,000, which carry a rate of return of 18.0% per annum. Refer to Preferred Investments
section of this MD&A for further details.
The change in other investments held in equity accounted investments is a result of the following:
Balance, December 31, 2021
Contributions:
Iris Acquisition II LP
ICE LP
ICE II LP
Net income from ICE II LP
Net income from Iris Acquisition II LP
Balance, December 31, 2022
The net income from Iris Acquisition II LP in 2022 includes a bargain purchase gain in the amount of $111,652.
$
—
112,000
5
—
823
34,185
$
147,013
DISTRIBUTIONS
The Trustees determine the level of cash distributions based on the level of cash flow from operations before working capital changes, less actual and
planned capital expenditures. During the period, distributions are based on estimates of full year cash flow and capital spending; thus, distributions
may be adjusted as these estimates change. It is expected that normal seasonal fluctuations in working capital will be funded from cash resources.
Three months ended
Year ended
Year ended
Year ended
December 31,
December 31,
December 31,
December 31,
2022
2022
2021
2020
Cash flow from operations
Net (loss) income
$
16,655 $
140,744 $
199,499 $
(128,301)
(5,294)
389,175
Monthly distributions paid and payable
Special Distribution payable in cash
20,428
9,234
29,662
86,228
9,234
95,462
76,250
39,589
115,839
170,589
21,543
91,074
—
91,074
(Shortfall) excess of cash flow from operations over
distributions paid and payable
(Shortfall) excess of net income over distributions paid and
payable
(13,007)
45,282
83,660
79,515
(157,963)
(100,756)
273,336
(69,531)
Artis's primary objective is to provide tax-efficient monthly cash distributions.
The shortfall of cash flow from operations over distributions declared for the three months ended December 31, 2022 was primarily due to timing of
changes in non-cash operating items. The shortfall of net income over distributions declared for the three months and the year ended December 31,
2022 was primarily due to the non-cash impact of the fair value losses on investment properties and financial instruments. 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.
CAPITAL RESOURCES
At December 31, 2022, Artis had $29,168 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, 2022, the
REIT had $98,066 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, 2022, this covenant did not limit the total
borrowing capacity of the revolving credit facilities (December 31, 2021, limited to $635,313).
At December 31, 2022, the REIT had 91 unencumbered properties, one unencumbered development project and three unencumbered parcels of
development land, representing a fair value of $2,034,409.
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,
2022.
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.
76 | Artis Real Estate Investment Trust
2022 Annual Report | 77
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
CONTRACTUAL OBLIGATIONS
Total
Less than
1 year
1 - 3 years
4 - 5 years
After
5 years
Accounts payable and other liabilities
$
72,581 $
72,581 $
— $
— $
Lease liabilities
Credit facilities
Senior unsecured debentures
Mortgages and loans payable
1,237
901,934
450,000
866,736
321
526,588
250,000
555,451
380
375,346
200,000
135,962
293
—
—
—
243
—
—
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's 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's
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's business, results of
operations and financial position.
103,678
71,645
Control or Significant Influence Risk & Minority Investments
Total contractual obligations
$
2,292,488 $
1,404,941 $
711,688 $
103,971 $
71,888
As at December 31, 2022, the REIT had extension options for mortgages maturing in 2023 in the amount of $151,137.
Subsequent to December 31, 2022, the $100,000 non-revolving credit facility that matured on February 6, 2023 was extended to February 6, 2024, the
$150,000 non-revolving credit facility maturing on July 18, 2023 was extended to July 18, 2024, and the $300,000 revolving credit facility maturing on
April 29, 2023 was replaced with a $280,000 revolving credit facility maturing on April 29, 2025.
The REIT's schedule of mortgage maturities is as follows:
Year ended December 31,
Debt maturities
% of total
principal
Scheduled
principal
repayments on
non-matured debt
Total annual
principal
repayments
Weighted-
average nominal
interest rate on
balance due at
maturity
2023
2024
2025
2026
2027
2028 & later
Total
$
539,469
86,826
34,563
64,417
31,584
66,793
65.6 % $
10.5 %
4.2 %
7.8 %
3.8 %
8.1 %
15,981 $
555,450
8,136
6,437
4,427
3,251
4,852
94,962
41,000
68,844
34,835
71,645
$
823,652
100.0 % $
43,084 $
866,736
4.60 %
6.23 %
6.35 %
2.58 %
2.26 %
3.72 %
4.53 %
RISKS AND UNCERTAINTIES
A summary of all risks applicable to the REIT are set forth in Artis's 2022 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's
standards established for its intended market position may be higher than expected.
Investment Portfolio
In connection with the Business Transformation Plan, investment returns will become an increasingly important part of Artis's overall profitability as
Artis's operating results will depend in part on the performance of its investment portfolio. It is expected that Artis's 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's 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.
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's 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's ownership position and affiliation with the portfolio company, it may still be negatively
impacted from a reputational perspective through this association.
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 President & 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 resulted in governments enacting emergency measures, including travel restrictions, physical distancing and the temporary
closure of non-essential businesses. These changes caused a disruption to markets where the REIT operates in both Canada and the U.S. and an
overall global economic slowdown.
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;
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.
78 | Artis Real Estate Investment Trust
2022 Annual Report | 79
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
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 five U.S. states, with the largest geographical segments, measured by net operating income, located in the provinces of
Alberta and Manitoba and in the states of Minnesota and Arizona. 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, 2022, investment properties under development account for 5.2% of Artis's total investment properties (December 31, 2021, 4.9%).
At December 31, 2022, the REIT had two development projects in progress, 300 Main 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, 2022, 38.6% of the REIT's mortgages and loans payable bear interest at fixed rates, and a further
25.1% of the REIT's mortgages and loans payable bear interest at variable rates with interest rate swaps in place. At December 31, 2022, the REIT is a
party to $1,434,072 of variable rate debt, including credit facilities (December 31, 2021, $1,324,662). At December 31, 2022, the REIT had entered into
interest rate swaps to hedge the interest rate risk associated with $217,136 of variable rate debt, including credit facilities, (December 31, 2021,
$907,516). 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, 2022, the REIT's ratio of secured mortgages and loans to GBV was 18.9%, compared to 23.7% at December 31, 2021. At December
31, 2022, the REIT's ratio of total debt to GBV was 48.5%, compared to 42.9% at December 31, 2021. Approximately 65.6% of Artis's maturing
mortgage debt comes up for renewal during 2023, and 10.5% in 2024. Management is in discussion with various lenders with respect to the renewal or
refinancing of the 2023 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's portfolio includes 1,106 tenant leases with a weighted-average term to maturity of 5.4 years. Approximately 49.7% of the REIT's 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. The second largest tenant by
gross revenue is AT&T, which is a leading provider of telecommunications, media and technology services globally.
Tenant
Bell Canada
AT&T (3)
Bell MTS
Prime Therapeutics, LLC
Catalent Pharma Solutions, LLC
TDS Telecommunications Corporation
CB Richard Ellis, Inc.
PBP, Inc.
Recipe Unlimited Corporation
UCare Minnesota
Silent Aire USA, Inc.
Shoppers Drug Mart
Civeo Canada Ltd.
Telephone and Data Systems, LLC
Soo Line Railroad Company
MLT Aikins LLP
Cineplex Entertainment, LP
Maple Leaf Consumer Foods, Inc.
Distribution Alternatives, Inc,
U of Wisconsin Medical Foundation
Total
Tenant
Federal Government
Provincial Government
Civic or Municipal Government
Total
Top 20 Tenants by Gross Revenue (1)
Tenant location
% of total gross
revenue (2)
Owned share
of GLA
(000's of S.F.)
% of total GLA
Weighted-
average
remaining
lease term
Canada
U.S.
Canada
U.S.
U.S.
U.S.
U.S.
U.S.
Canada
U.S.
U.S.
Canada
Canada
U.S.
U.S.
Canada
Canada
Canada
U.S.
U.S.
2.5 %
2.4 %
2.2 %
2.2 %
1.6 %
1.5 %
1.4 %
1.3 %
1.3 %
1.1 %
1.0 %
1.0 %
1.0 %
1.0 %
0.9 %
0.9 %
0.8 %
0.8 %
0.8 %
0.8 %
115
257
214
386
233
150
108
519
100
124
289
78
72
105
92
60
108
163
403
101
0.7 %
1.7 %
1.4 %
2.5 %
1.5 %
1.0 %
0.7 %
3.4 %
0.6 %
0.8 %
1.9 %
0.5 %
0.5 %
0.7 %
0.6 %
0.4 %
0.7 %
1.1 %
2.6 %
0.7 %
26.5 %
3,677
24.0 %
6.8
0.2
4.0
11.8
13.6
6.0
4.0
8.9
6.0
10.6
5.0
4.0
5.5
1.3
4.7
1.8
2.9
6.5
10.0
4.7
7.1
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
2.5 %
0.2 %
1.2 %
3.9 %
246
13
195
454
1.6 %
0.1 %
1.3 %
3.0 %
5.7
1.7
11.1
7.9
5.4
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.
(3) AT&T vacated their premises on February 28, 2023.
Lease Rollover
80 | Artis Real Estate Investment Trust
2022 Annual Report | 81
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.
Management’s Discussion & AnalysisManagement’s Discussion & Analysis Details of the portfolio's expiry schedule is as follows:
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.
Expiry Year
AB
BC
MB
SK
ON
AZ
CO
MN
TX
WI
Total
Canada
U.S.
Fees paid and accrued to Sandpiper were as follows:
2023
2024
2025
2026
2027 & later
Vacant
Month-to-month
2.3 %
1.2 %
1.6 %
1.6 %
3.8 %
2.0 %
0.1 %
0.2 %
0.2 %
0.1 %
0.3 %
1.1 %
0.2 %
— %
4.1 %
2.7 %
2.8 %
4.7 %
7.7 %
2.1 %
0.1 %
0.3 %
0.3 %
0.2 %
0.1 %
2.7 %
— %
— %
— %
— %
— %
— %
0.6 %
— %
— %
1.5 %
1.0 %
2.0 %
1.2 %
5.0 %
0.5 %
0.1 %
1.9 %
0.1 %
0.3 %
— %
1.7 %
2.4 %
0.7 %
1.3 %
0.1 % 11.7 %
0.3 %
0.1 %
2.8 %
— %
— %
0.2 %
0.6 %
— %
9.8 %
0.2 %
— %
2.6 %
1.0 %
0.6 %
1.5 %
3.8 %
1.9 %
— %
14.6 %
9.1 %
8.9 %
10.7 %
46.3 %
10.0 %
0.4 %
Space sharing licence costs
Service fees
$
$
Three months ended
December 31,
2021
2022
$
31
446
$
31
76
2022
124
1,231
477
$
107
$
1,355
$
Year ended
December 31,
2021
$
83
111
194
Total portfolio
12.6 %
2.1 % 24.2 %
3.6 %
0.6 %
11.3 %
2.8 % 20.6 % 10.8 % 11.4 % 100.0 %
Amounts payable to Sandpiper were $446 as at December 31, 2022 (December 31, 2021, $76).
Artis's real estate is diversified across five Canadian provinces and five 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 Q4-22 net operating income) are Twin Cities Area office, Madison office, Twin Cities
Area industrial, Greater Phoenix Area office and Greater Houston Area industrial.
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, 2022 and December 31, 2021. 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's reliance on technology has increased, so have the risks posed to its system. Artis's 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's operations to increased risks,
as well as increased costs, and, depending on their magnitude, could have a material adverse effect on Artis's financial position and results of
operations.
The Board and management are responsible for overseeing Artis's 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.
OTHER INFORMATION
RELATED PARTY TRANSACTIONS
In 2022, 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
In connection with the investment in Iris on March 1, 2022, the REIT entered into two joint ventures, ICE LP and ICE II LP, with Sandpiper and an affiliate
of Sandpiper. As at December 31, 2022, the REIT had a balance payable to ICE II LP of $738.
SUBSEQUENT EVENTS
Subsequent to December 31, 2022, the following transactions took place:
•
•
•
•
•
•
•
•
•
•
•
•
The REIT received full repayment of a note receivable in the amount of $6,000.
The REIT entered into an unconditional sale agreement to sell an office property located in Saskatoon, Saskatchewan, for a sale price of
$14,550 with expected closing in March 2023.
The REIT entered into an amended agreement to extend the maturity date of the $50,000 non-revolving credit facility to April 3, 2023, at an
interest rate of BA rate plus 1.70% or prime plus 0.70%.
The REIT entered into an amended agreement to extend the maturity date of the $100,000 non-revolving credit facility to February 6, 2024,
at an interest rate of BA rate plus 1.70% or prime plus 0.70%.
The REIT entered into an amended agreement to extend the maturity date of the $150,000 non-revolving credit facility to July 18, 2024, at
an interest rate of BA rate plus 1.70% or prime plus 0.70%. The amended agreement provides for CORRA as the Canadian benchmark
replacement rate on Canadian dollar term advances when the publication of CDOR ceases.
The REIT entered into an amended and restated agreement to reduce the $300,000 revolving credit facility to $280,000 and extend the
maturity date from April 29, 2023 to April 29, 2025. The amended and restated agreement amends the interest rate on US dollar term
advances for all revolving credit facilities to SOFR plus 1.70%, to provide for the cessation of the LIBOR rate. In addition, the amended and
restated agreement provides for CORRA as the Canadian benchmark replacement rate on Canadian dollar term advances when the
publication of CDOR ceases.
The REIT repaid a net balance of $1,000 and repaid a net balance of US$12,000 on its revolving term credit facilities.
The REIT repaid a mortgage in the amount of US$28,867 and received new mortgage financing in the amount of US$37,000.
The REIT purchased through the NCIB 10,900 common units at a weighted-average price of $9.00, 13,700 Series E preferred units at a
weighted-average price of $23.52 and 18,700 Series I preferred units at a weighted-average price of $24.87.
The REIT sold equity securities for aggregate net proceeds of $19,477.
The REIT declared a monthly cash distribution of $0.05 per common unit for the months of January and February 2023.
The REIT declared a quarterly cash distribution of $0.3750 per Series I preferred unit for the three months ended January 31, 2023.
OUTSTANDING UNIT DATA
As of February 28, 2023, the balance of common units outstanding is as follows:
Units outstanding at December 31, 2022
Units issued on redemption of restricted units
Units purchased and cancelled through NCIB
Units outstanding at February 28, 2023
Total
115,409,234
2,392
(10,900)
115,400,726
82 | Artis Real Estate Investment Trust
2022 Annual Report | 83
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
As of February 28, 2023, the balance of preferred units outstanding is as follows:
Series E
Series I
Total
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. The quarterly financial results have also been impacted by the COVID-19 pandemic.
Preferred units outstanding at December 31, 2022
Preferred units purchased and cancelled through NCIB
Preferred units purchased through NCIB, not cancelled at February 28, 2023
3,605,110
4,896,740
8,501,850
(12,600)
(1,100)
(17,200)
(1,500)
(29,800)
(2,600)
Preferred units outstanding at February 28, 2023
3,591,410
4,878,040
8,469,450
The balance of restricted units outstanding as of February 28, 2023 is 423,833, none of which have vested.
The balance of deferred units outstanding as of February 28, 2023 is 226,531. All of these deferred units have vested, none of which are redeemable.
SUMMARIZED QUARTERLY INFORMATION
$000's, except per unit amounts
Q4-22
Q3-22
Q2-22
Q1-22
Q4-21
Q3-21
Q2-21
Q1-21
$ 94,102
$ 94,114
$ 91,055
$ 93,241
$ 97,665
$ 97,658
$ 103,299
$ 120,877
Revenue
Net operating income
Net (loss) income
52,377
53,716
52,425
51,462
(128,301)
(94,450)
(19,556)
237,013
Total comprehensive (loss) income
(147,659)
Basic (loss) income per common unit
Diluted (loss) income per common unit
(1.13)
(1.14)
8,867
(0.85)
(0.86)
30,553
213,776
(0.20)
(0.21)
1.91
1.90
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
Per unit results are also impacted by units purchased under the NCIB.
CRITICAL ACCOUNTING ESTIMATES
Artis REIT's management believes that the policies below are those most subject to estimation and judgment by management.
VALUATION OF INVESTMENT PROPERTIES
Investment properties include properties held to earn rental income and properties that are being constructed or developed for future use as
investment properties. Investment properties are measured at fair value with any changes therein recognized in net income or loss for the year. Artis
determines the fair value of investment properties 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 7.48% at December 31, 2022 and 7.37% at December 31, 2021. 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 6.40% at December 31, 2022 and 6.22% at December 31, 2021.
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.
$ 35,430
$ 42,414
$ 44,939
$ 42,008
$ 40,323
$ 42,019
$ 45,428
$ 46,573
VALUATION OF DEFERRED TAX ASSETS AND LIABILITIES
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 growth (decline) (1)
Adjusted EBITDA interest coverage ratio (1)
0.30
50.0 %
0.36
41.7 %
0.38
39.5 %
0.34
44.1 %
0.32
46.9 %
0.33
45.5 %
0.34
44.1 %
0.35
40.0 %
$ 22,047
$ 29,367
$ 31,567
$ 29,571
$ 27,919
$ 29,827
$ 32,795
$ 33,935
0.19
78.9 %
5.2 %
2.35
0.25
60.0 %
4.3 %
2.83
0.27
55.6 %
0.7 %
3.35
0.24
62.5 %
(2.6) %
3.90
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
Leasable area renewed (in square feet)
325,361
486,937
388,424
255,815
786,531
329,468
326,397
478,213
Increase in weighted-average rental rate
6.9 %
3.0 %
3.7 %
7.8 %
3.9 %
2.0 %
7.3 %
4.3 %
2022
2022
2022
2022
2021
2021
2021
2021
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
134
15,462
90.1 %
152
18,065
90.5 %
152
17,585
90.7 %
153
17,712
89.5 %
156
17,929
89.4 %
161
18,526
89.1 %
194
21,108
90.6 %
197
21,524
91.4 %
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, 2022 and 2021.
CHANGES IN ACCOUNTING STANDARDS
New or Revised Accounting Standard Adopted During the Year
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. These amendments had no impact on the consolidated financial statements.
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. These amendments had no impact on the
consolidated financial statements as no onerous contracts were identified during the year.
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. These amendments were adopted when assessing the terms of the new and modified financial liabilities
during the year and have no material impact on consolidated financial statements.
NAV per unit (1)
$
17.38
$
19.26
$
19.37
$
19.09
$
17.37
$
17.45
$
16.78
$
15.34
Future Changes in Accounting Standards
Total debt to Adjusted EBITDA (1)
Secured mortgages and loans to GBV (1)
Total debt to GBV (1)
8.3
18.9 %
48.5 %
9.2
20.5 %
47.9 %
8.9
20.5 %
46.0 %
8.5
22.0 %
43.0 %
8.2
23.7 %
42.9 %
8.0
24.4 %
43.0 %
9.0
23.6 %
47.5 %
8.8
27.3 %
49.2 %
Fair value unencumbered assets (1)
$ 2,034,409 $ 2,103,103 $ 1,954,006 $ 1,889,416 $ 1,902,748 $ 1,905,921 $ 2,363,222 $ 1,876,380
Total assets
$ 4,553,913 $ 5,180,503 $ 4,998,257 $ 4,798,662 $ 4,576,024 $ 4,593,164 $ 4,955,764 $ 4,853,520
Total non-current financial liabilities
974,063
556,374
1,159,071
1,186,622
1,166,123
1,285,852
1,619,338
1,489,308
(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 and December 2022.
In May 2017, the IASB issued IFRS 17 Insurance Contracts, which establishes the principles for the recognition, measurement, presentation and
disclosure of insurance contracts. IFRS 17 replaced IFRS 4 Insurance Contracts. In June 2020, the IASB issued amendments to IFRS 17 that included
changing the effective date to 2023. IFRS 17 applies to all types of insurance contracts, regardless of the type of entities that issue them, as well as to
certain guarantees and financial instruments with discretionary participation features. The amendments are applied retrospectively for annual periods
beginning on or after January 1, 2023, with early application permitted. The REIT does not expect a material impact to its consolidated financial
statements from the adoption of this standard.
84 | Artis Real Estate Investment Trust
2022 Annual Report | 85
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
In January 2020, the Board 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. In October
2022, the IASB issued further amendments to IAS 1 that clarify only covenants with which an entity must comply on or before the reporting date will
affect a liability’s classification as current or non-current and specify additional disclosures requirements. The amendments are effective for annual
periods beginning on or after January 1, 2024 and are to be applied retroactively. The REIT is in the process of assessing the impact of these
amendments.
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.
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, 2022, 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, 2022, that have materially affected, or are
reasonably likely to materially affect, the REIT's internal controls over financial reporting.
DISCLOSURE CONTROLS AND PROCEDURES
The REIT's disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the REIT is
recorded, processed, summarized and reported within the time periods specified under Canadian securities laws, and include controls and procedures
that are designed to ensure that information is accumulated and communicated to management, including the CEO and CFO, to allow timely
decisions regarding required disclosure.
As of December 31, 2022, 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, 2022.
Consolidated Financial Statements
Years ended December 31, 2022 and 2021
(in thousands of Canadian dollars, except unit and per unit amounts)
86 | Artis Real Estate Investment Trust
2022 Annual Report | 87
Consolidated Financial StatementsManagement’s Discussion & Analysis 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”
“Jaclyn Koenig”
Samir Manji
President and Chief Executive Officer
February 28, 2023
Jaclyn Koenig, CPA, CA
Chief Financial Officer
February 28, 2023
88 | Artis Real Estate Investment Trust
2022 Annual Report | 89
Consolidated Financial StatementsConsolidated Financial Statements
90 | Artis Real Estate Investment Trust
2022 Annual Report | 91
Consolidated Financial StatementsConsolidated Financial Statements 92 | Artis Real Estate Investment Trust
2022 Annual Report | 93
Consolidated Financial StatementsConsolidated Financial Statements Consolidated Balance Sheets
Consolidated Statements of Operations
ASSETS
Non-current assets:
Investment properties
Investment properties under development
Equity accounted investments
Preferred investments
Equity securities
Property and equipment
Notes receivable
Deferred rents receivable
Current assets:
Investment properties held for sale
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
Deferred tax liabilities
Other long-term liabilities
Current liabilities:
Mortgages and loans payable
Senior unsecured debentures
Security deposits and prepaid rent
Accounts payable and other liabilities
Credit facilities
Total liabilities
Unitholders' equity
Commitments, contingencies and guarantees
Subsequent events
Total liabilities and unitholders' equity
See accompanying notes to consolidated financial statements.
December 31,
December 31,
Note
2022
2021
$
3,156,206
$
3,741,544
191,552
326,050
114,184
316,768
5,343
37,702
—
195,161
180,078
—
77,186
6,411
35,448
122
4,147,805
4,235,950
335,813
12,161
993
17,307
10,666
29,168
406,108
62,904
7,979
834
14,674
32,209
221,474
340,074
$
4,553,913
$
4,576,024
$
$
388,569
199,368
374,735
9,525
1,866
974,063
476,129
249,723
25,513
72,902
526,424
1,350,691
2,324,754
2,229,159
783,129
249,346
131,643
—
2,005
1,166,123
301,910
—
31,867
121,161
499,610
954,548
2,120,671
2,455,353
4
4
5
5
7
8
9
11
4
10
9
11
12
13
14
24
12
13
15
14
30
34
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):
Interest and other income
Distribution income from equity securities
Interest expense
Corporate expenses
Equity securities expenses
Strategic initiative expenses
Transaction costs
Net income from equity accounted investments
Fair value (loss) gain on investment properties
Fair value (loss) gain on financial instruments
Foreign currency translation loss
Year ended
December 31,
Note
2022
2021
19
19
$
372,512
$
401,638
—
17,861
372,512
419,499
102,450
60,082
—
100,819
64,857
16,038
162,532
181,714
209,980
237,785
18,944
10,710
(89,437)
(7,661)
(1,890)
—
—
74,659
(178,431)
(21,130)
(6,683)
1,885
898
(69,648)
(12,527)
(186)
(18)
(11)
16,795
197,511
21,224
(3,244)
20
7
21
22
7
3
5
4
23
Income before income taxes
9,061
390,464
Income tax expense
Net (loss) income
Other comprehensive income that may be reclassified to net income in subsequent years:
Unrealized foreign currency translation gain (loss)
Unrealized foreign currency translation gain (loss) on equity accounted investments
Other comprehensive income (loss)
Total comprehensive income
Basic (loss) income per unit attributable to common unitholders
Diluted (loss) income per unit attributable to common unitholders
24
(14,355)
(1,289)
(5,294)
389,175
102,923
7,908
(774)
(699)
110,831
(1,473)
105,537
$
387,702
(0.18)
$
2.87
(0.19)
2.86
$
$
117,932,876
129,553,433
118,469,587
130,025,917
16
16
16
16
$
4,553,913
$
4,576,024
Weighted-average number of common units outstanding:
Basic
Diluted
See accompanying notes to consolidated financial statements.
94 | Artis Real Estate Investment Trust
2022 Annual Report | 95
Consolidated Financial StatementsConsolidated Financial Statements
Consolidated Statements of Changes in Unitholders' Equity
Consolidated Statements of Cash Flows
Common
units capital
contribution
s
Retained
earnings
(deficit)
Accumulated
other
comprehensive
income
Contribute
d
surplus
Total
common
equity
Total
preferred
equity
Total
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 16)
Units acquired and cancelled through
normal course issuer bid (note 16)
Units acquired through normal course
issuer bid, not cancelled at year end
(note 16)
Net income
Other comprehensive loss
Distributions
428
(142,912)
(2,225)
—
—
—
—
—
—
389,175
—
(137,417)
Distributions in units (note 16)
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
Changes for the year:
Issuance of common units, net of issue
costs (note 16)
Redemption of preferred units
(note 16)
Units acquired and cancelled through
normal course issuer bid (note 16)
Units acquired through normal course
issuer bid, not cancelled at year end
(note 16)
Net loss
Other comprehensive income
Distributions
230
—
(123,195)
(325)
—
—
—
—
—
—
—
(5,294)
—
(145,094)
Distributions in units (note 16)
9,234
(9,234)
—
—
—
—
—
110,831
—
—
—
230
—
230
(3,866)
(3,866)
(77,342)
(81,208)
22,800
(100,395)
(4,969)
(105,364)
134
—
—
—
—
(191)
(5,294)
110,831
(145,094)
—
(104)
—
—
—
—
(295)
(5,294)
110,831
(145,094)
—
Unitholders' equity, December 31, 2022 $
1,751,927 $
(72,956) $
256,589 $
87,793 $ 2,023,353 $ 205,806 $ 2,229,159
See accompanying notes to consolidated financial statements.
Cash provided by (used in):
Operating activities:
Net (loss) income
Adjustments for:
Interest income on preferred investments received in-kind
Distribution income from equity securities
Net income from equity accounted investments
Fair value loss (gain) on investment properties
Fair value loss (gain) on financial instruments
Unrealized foreign currency translation loss
Deferred taxes
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
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
Purchase of preferred investments
Purchases of equity securities
Proceeds from disposition of equity securities, net of costs
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
Repayment of non-revolving credit facilities, including 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
Redemption of preferred units
Distributions paid on common units
Distributions paid on preferred units
Foreign exchange gain (loss) on cash held in foreign currency
(Decrease) increase in cash
Cash, beginning of year
Cash, end of year
See accompanying notes to consolidated financial statements.
Year ended
December 31,
Note
2022
2021
$
(5,294)
$
389,175
5
7
5
4
23
25
25
3
3
5
13
16
16
16
(14,184)
(10,710)
(74,659)
178,431
21,130
9,415
13,837
26,840
(4,062)
140,744
(3,276)
340,735
(26,130)
(63,855)
(48,600)
(120,640)
4,166
(100,000)
(336,261)
41,469
9,384
(21)
(2,580)
854
—
15,766
(288,989)
(191,148)
51,172
199,200
—
897,221
(439,698)
(200,284)
(305)
—
(100,572)
(5,087)
(81,208)
(160,006)
(15,856)
(46,571)
2,510
(192,306)
221,474
—
(898)
(16,795)
(197,511)
(21,224)
3,388
—
27,307
16,057
199,499
(5,339)
791,725
(22,628)
(66,532)
(38,146)
(11,690)
41,476
—
(71,576)
—
686
(5)
(150)
1,503
1,196
(10,260)
610,260
(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
$
29,168
$
221,474
96 | Artis Real Estate Investment Trust
2022 Annual Report | 97
Consolidated Financial StatementsConsolidated Financial Statements
Notes to Consolidated Financial Statements
Years ended December 31, 2022 and 2021
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 REIT's vision is to become a best-in-class real estate asset management and
investment platform focused on growing net asset value per unit and distributions for its investors through value investing. The REIT owns, manages,
leases and develops industrial, office, retail and residential properties in Canada and the United States (the "U.S."), and holds other real estate
investments. The registered office of the REIT is 600 - 220 Portage Avenue, Winnipeg, Manitoba, R3C 0A5.
The Declaration of Trust provides that the REIT may make cash distributions to 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 $1.3680 per Series
E Unit and $1.50 per Series I Unit.
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:
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 as 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
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 FVTPL are recognized immediately in net income.
Financial assets, other than those classified as FVTPL, are assessed for impairment at the end of each reporting period using the expected credit loss
("ECL") model. The ECL model is based on an unbiased and probability-weighted amount that is determined by evaluating a range of possible
outcomes, the time value of money and reasonable and supportable information that is available without undue cost or effort at the reporting date
about past events, current conditions and forecasts of future economic conditions. The REIT measures loss allowance for notes receivable, accounts
receivable and other receivables at the lifetime expected credit losses. Notes receivable, accounts receivable and other receivables are written off
when there is no realistic prospect of future recovery and all collateral has been realized.
(f) Investment properties:
Investment properties include properties held to earn rental income and properties that are being constructed or developed for future use as
investment properties. Investment properties are measured at fair value with any changes therein recognized in profit or loss for the period.
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.
The consolidated financial statements are presented in Canadian dollars, which is the functional currency of the REIT.
(g) Investments in associates and joint arrangements:
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 preferred investments, 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 cost. All derivative instruments, including embedded derivatives, are classified as FVTPL and are recorded on the
consolidated balance sheet at fair value.
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.
The REIT accounts for joint operations by recording its proportionate share of their assets, liabilities, revenues, expenses and cash flows in its
consolidated financial statements.
(h) 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.
98 | Artis Real Estate Investment Trust
2022 Annual Report | 99
Consolidated Financial StatementsConsolidated Financial Statements
(i) Assets held for sale and discontinued operations:
The taxable subsidiaries of the REIT account for income taxes as follows:
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.
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.
(j) Cash held in trust:
Cash held in trust consists of cash held by financial institutions with restrictions pursuant to mortgage agreements, letters of credit and construction
holdbacks. Cash held in trust may also include cash held in escrow pursuant to purchase and sale agreements in relation to acquisitions and
dispositions of investment properties.
(k) 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.
(l) Revenue recognition:
The REIT has retained substantially all of the risks and benefits of ownership of its investment properties and therefore accounts for leases with its
tenants as operating leases. Revenue from investment properties includes all amounts earned from tenants related to lease agreements, including
base rent, property operating cost and realty tax recoveries, lease termination income and other incidental income.
The total amount of base rent in lease agreements is accounted for on a straight-line basis over the term of the respective leases. A straight-line rent
receivable, which is included in the carrying amount of investment properties, is recorded for the difference between the rental revenue recorded and
the contractual rent received.
Property operating cost and realty tax recoveries are accrued and recognized as revenue in the period that the recoverable costs are incurred and
become chargeable to tenants.
Tenant inducements are recognized as a reduction to revenue and are amortized on a straight-line basis over the term of the lease.
Revenue from the sale of commercial condominium units 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.
(m) 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.
(n) Income taxes:
The REIT currently qualifies as a mutual fund trust and a real estate investment trust ("REIT") for Canadian income tax purposes. Under current tax
legislation, income distributed annually by the REIT to unitholders is a deduction in the calculation of its taxable income. As the income tax obligations
relating to the distributions are those of the individual unitholders, no provision for income taxes is required on such amounts. The REIT intends to
distribute all of its taxable income to its unitholders, and no current and deferred income tax is recognized relating to Canadian investment properties.
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.
Current income tax assets and liabilities are measured at the amount expected to be received from or paid to tax authorities based on the tax rates
and laws enacted or substantively enacted at the consolidated balance sheet dates.
Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax liabilities are recognized for taxable temporary
differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the REIT is able to control the reversal of
the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax liabilities are
measured by applying the appropriate tax rate to taxable temporary differences between the carrying amounts of assets and liabilities, and their
respective tax basis. The appropriate tax rate is determined by reference to the rates that are expected to apply to the year and the jurisdiction in
which the assets are expected to be realized or the liabilities settled, based on tax laws and rates that have been enacted or substantively enacted at
the reporting date. Deferred tax assets are recorded for all deductible temporary differences, carryforward of unused tax credits and unused tax
losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax credits and
unused tax losses can be utilized.
(o) Earnings per unit:
Basic earnings per common unit is computed by dividing net income for the period attributable to common unitholders by the weighted-average
number of common units outstanding during the reporting period. Diluted earnings per unit is calculated based on the weighted-average number of
common units outstanding during the period, plus the effect of dilutive unit equivalents of restricted units and deferred units.
(p) Use of estimates and judgments:
The preparation of the consolidated financial statements requires management to make estimates, assumptions and judgments that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period. Actual results could differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which
the estimates are revised and in any future periods affected.
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 (l).
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 (l). 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.
Classification of joint arrangements - The REIT's accounting policy relating to joint arrangements is described in note 2 (g). Judgment is applied
in determining whether joint arrangements constitute a joint venture or a joint operation.
Classification of investments in associates - The REIT's accounting policy relating to investments in associates is described in note 2 (g).
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:
–
–
–
–
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.
Income taxes - The REIT operates in Canada and the U.S. and is subject to tax laws and related tax treaties in each jurisdiction. These laws and
treaties can be subject to different interpretations by relevant taxation authorities. The critical estimates and assumptions underlying the
recognition and measurement of income tax expense, deferred tax liabilities and deferred tax assets are described in note 2 (n) and note 24.
Allowance for doubtful accounts - The critical estimates and assumptions underlying the valuation of allowance for doubtful accounts are
described in note 32.
Fair value of financial instruments - The fair value of financial instruments is estimated as the amount for which an instrument could be
exchanged, or liability settled, between knowledgeable, willing parties in an arm's length transaction. The estimates and assumptions underlying
the fair value of financial instruments are described in note 33.
100 | Artis Real Estate Investment Trust
2022 Annual Report | 101
Consolidated Financial StatementsConsolidated Financial Statements (q) New or revised accounting standards adopted during the year:
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. These amendments had no impact on the consolidated financial statements.
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. These amendments had no impact on the
consolidated financial statements as no onerous contracts were identified during the year.
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. These amendments were adopted when assessing the terms of the new and modified financial liabilities
during the year and have no material impact on consolidated financial statements.
(r) Future changes in accounting standards:
In May 2017, the IASB issued IFRS 17 Insurance Contracts, which establishes the principles for the recognition, measurement, presentation and
disclosure of insurance contracts. IFRS 17 replaced IFRS 4 Insurance Contracts. In June 2020, the IASB issued amendments to IFRS 17 that included
changing the effective date to 2023. IFRS 17 applies to all types of insurance contracts, regardless of the type of entities that issue them, as well as to
certain guarantees and financial instruments with discretionary participation features. The amendments are applied retrospectively for annual periods
beginning on or after January 1, 2023, with early application permitted. The REIT does not expect a material impact to its consolidated financial
statements from the adoption of this standard.
In January 2020, the Board 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. In October
2022, the IASB issued further amendments to IAS 1 that clarify only covenants with which an entity must comply on or before the reporting date will
affect a liability’s classification as current or non-current and specify additional disclosures requirements. The amendments are effective for annual
periods beginning on or after January 1, 2024 and are to be applied retroactively. The REIT is in the process of assessing the impact of these
amendments.
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.
Note 3.
Acquisitions and dispositions of investment properties
Acquisitions:
On September 30, 2022, the REIT acquired an additional 5% interest in Park 8Ninety II, 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.
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.
On May 7, 2021 and September 24, 2021, the REIT acquired two parcels of industrial development land in the Twin Cities Area, Minnesota.
The acquisitions of the interests in Park 8Ninety II and Park 8Ninety IV have been accounted for using the acquisition method, with the results of
operations included in the REIT's accounts from the date of acquisition. The net assets acquired, excluding the acquisitions of equity accounted
investments and including the acquisitions of land, were as follows:
Investment properties
Long-term debt, including acquired above- and below-market mortgages, net of financing costs
Other net (liabilities) assets
Consideration was comprised of the following:
Cash consideration
Total consideration
Transaction costs expensed
Dispositions:
2022
$
5,219
$
(1,885)
(58)
3,276
3,276
3,276
—
$
$
$
$
Year ended
December 31,
2021
5,823
(487)
3
5,339
5,339
5,339
11
The REIT disposed of the following properties during the year ended December 31, 2022:
Property
Property count
Location
Disposition date
Asset class
Cancross Office Portfolio
2150-2180 Dunwin Drive
Meadowvale Office
Rocky Mountain Business Center
New Brighton Office Center
Minnesota Industrial Portfolio I
Hartford Corporate Plaza
2
1
1
1
1
17
1
Greater Toronto Area, ON
Greater Toronto Area, ON
Greater Toronto Area, ON
Greater Denver Area, CO
Twin Cities Area, MN
Twin Cities Area, MN
New Hartford, NY
January 20, 2022
March 10, 2022
June 24, 2022
June 30, 2022
September 19, 2022
November 4, 2022
November 15, 2022
Office
Industrial
Office
Industrial
Office
Industrial
Office
The cash proceeds received from the sale of the above properties, net of costs and related debt, were $340,735. The assets and liabilities associated
with the properties were derecognized.
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
Industrial
Winnipeg, MB
Regina, SK
Regina, SK
Calgary, AB
Calgary, AB
Calgary, AB
Calgary, AB
19, 2021
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 9).
The assets and liabilities associated with the properties were derecognized.
102 | Artis Real Estate Investment Trust
2022 Annual Report | 103
Consolidated Financial StatementsConsolidated Financial Statements
The REIT had 10 industrial properties, four office properties, one retail property, two industrial properties under development and two parcels of
development land classified as investment properties held for sale that were actively marketed for sale or under unconditional sale agreements at
December 31, 2022 (December 31, 2021, one industrial and two office properties). The properties held for sale had an aggregate mortgage payable
balance of $72,018 at December 31, 2022 (December 31, 2021, $nil). This balance is not accounted for as held for sale but is included in current
liabilities as the REIT intends to repay the mortgages upon disposition of the related investment properties.
At December 31, 2022, included in investment properties was $48,962 (December 31, 2021, $48,916) of net straight-line rent receivables arising from
the recognition of rental income on a straight-line basis over the lease term.
Investment properties include right-of-use assets held under a lease with an aggregate fair value of $10,420 at December 31, 2022 (December 31, 2021,
$11,448). The lease payments required under this lease were fully paid at the time of acquisition of the property.
At December 31, 2022, investment properties with a fair value of $1,649,162 (December 31, 2021, $2,096,861) 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, 2022, properties (including the REIT's ownership interest in properties held in equity accounted investments except for
those held in Iris Acquisition II LP) with an appraised value of $615,315 (year ended December 31, 2021, $775,751), 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, 2022 and 2021.
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 current global macroeconomic environment has created estimation uncertainty in the determination of the fair values of investment properties as
at December 31, 2022. The REIT has reviewed the valuation of its properties in light of the difficulty in anticipating the impact of factors including, but
not limited to, inflationary pressures, rising interest rates, labour and supply shortages and the on-going COVID-19 pandemic, on property cash flows
and capitalization rates. As a result of this estimation uncertainty, there is a risk that the assumptions used to determine fair values as at December 31,
2022 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 33.
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
Dispositions
Foreign currency translation gain
Fair value loss
Reclassification of investment properties under development
Reclassification of investment properties held for sale
Year ended
December 31, 2022
Investment
properties
Investment
properties under
development
Investment
properties held for
sale
$
3,741,544
$
195,161
$
62,904
5,219
98,930
24,223
—
8,434
966
8,277
(18,412)
115,183
(124,258)
5,888
(709,788)
—
—
60,340
1,346
258
7
1,740
—
956
(9,352)
(5,888)
(53,016)
—
—
2,399
—
3,363
406
1,123
(486,517)
34,152
(44,821)
—
762,804
Balance, end of year
$
3,156,206
$
191,552
$
335,813
(1) On September 30, 2022, the REIT increased its ownership interest in Park 8Ninety II to 100%. See note 3 for further information.
(2) During the year ended December 31, 2022, interest was capitalized to investment properties under development at a weighted-average effective rate of 4.60%.
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.
At December 31, 2022, investment properties under development included 300 Main, a commercial and residential/multi-family development project
with a fair value of $190,845 (December 31, 2021, $174,997). 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.
104 | Artis Real Estate Investment Trust
2022 Annual Report | 105
Consolidated Financial StatementsConsolidated Financial Statements
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, 2022
December 31, 2021
Maximum
Minimum
Weighted-
average
Maximum
Minimum
Weighted-
average
9.50 %
9.00 %
8.75 %
12.0
10.00 %
8.25 %
8.25 %
12.0
10.00 %
9.00 %
8.75 %
12.0
5.00 %
3.75 %
3.75 %
10.0
6.00 %
5.25 %
5.00 %
10.0
5.00 %
3.75 %
3.75 %
10.0
7.21 %
6.23 %
6.20 %
10.4
7.82 %
6.79 %
6.66 %
10.4
7.48 %
6.48 %
6.40 %
10.4
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
The above information represents the REIT's entire portfolio of investment properties, excluding properties held in the REIT's equity accounted
investments.
The following sensitivity table outlines the impact of a 0.25% change in the weighted-average capitalization rate on investment properties at December
31, 2022:
Change to fair value if capitalization rate increased
by 0.25%
Change to fair value if capitalization rate decreased
by 0.25%
Canada
U.S.
$
$
(70,904)
(70,384)
(141,288)
$
$
77,337
76,254
153,591
Note 5.
Equity accounted investments and preferred investments
The REIT has the following equity accounted investments:
Principal purpose
Location
Ownership interest
December 31,
December 31,
2022
2021
Associates:
Iris Acquisition II LP
Investment in Cominar Real Estate
Investment Trust
Greater Montreal & Quebec
City Areas, QC/Greater
Ottawa Area, ON
32.64 %
— %
Park Lucero East
Investment property
Greater Phoenix Area, AZ
10.00 %
10.00 %
Joint ventures:
Park 8Ninety II (1)
Park 8Ninety V
Corridor Park
Investment property
Investment property
Investment property
Graham Portfolio
Investment property
The Point at Inverness
Investment property
Greater Houston Area, TX
Greater Houston Area, TX
Greater Houston Area, TX
Various Cities, AB/BC/SK
Greater Denver Area, CO
ICE LP
ICE II LP
Investment in Iris Acquisition II LP
Investment in the asset manager of
Cominar Real Estate Investment Trust
—
—
(1) During the year ended December 31, 2022, the REIT increased its ownership interest in this property to 100%. See note 3 for further information.
— %
95.00 %
90.00 %
75.00 %
50.00 %
50.00 %
50.00 %
95.00 %
95.00 %
90.00 %
75.00 %
50.00 %
— %
— %
On March 1, 2022, the REIT contributed $112,000 to acquire common equity units of Iris Acquisition II LP ("Iris"), an entity formed to acquire the
outstanding units of Cominar Real Estate Investment Trust (“Cominar”) for consideration of $11.75 per unit in cash under a Plan of Arrangement. As
part of the consideration, the REIT contributed its previously-owned Cominar units with a fair value of $13,488. The REIT's investment in 32.64% of the
outstanding common equity units of Iris is determined to be an investment in an associate and measured using the equity method, on the basis that
the REIT has significant influence over this investment through representation on the Board of Cominar and the Board of the ultimate general partner
of Iris.
In addition, the REIT acquired junior preferred units of Iris for $100,000. The junior preferred units have a rate of return of 18.00% per annum, are
redeemable by Iris at any time and are redeemable by the REIT commencing on March 1, 2025. Distributions on the junior preferred units are paid
quarterly in cash, or at the election of Iris, in-kind through additional junior preferred units. The REIT's investment in the junior preferred units is
classified as a financial instrument measured at amortized cost. During the year ended December 31, 2022, the REIT received income from its
investment in the junior preferred units of $15,713, comprised of $1,529 cash and $14,184 in-kind junior preferred units.
In connection with the investment in Iris, the REIT, Sandpiper Asset Management Inc. ("Sandpiper") and an affiliate of Sandpiper entered into two joint
ventures, ICE LP and ICE II LP. ICE LP holds a 33.33% interest in the ultimate general partner of Iris and an equity interest in Iris with profit participation
rights. ICE II LP holds a 33.33% interest in the asset manager of Cominar. Under the asset management agreement, the asset manager earns a
monthly fee of 1/12th of 1.75% of the net asset value of Iris. The asset management agreement has an initial term of six years with an automatic
renewal of one year thereafter. The REIT's 50% interest in each of ICE LP and ICE II LP are determined to be joint ventures and measured using the
equity method, on the basis that the REIT has joint control over these entities. Sandpiper is a related party to the REIT (see note 27). During the year
ended December 31, 2022, the REIT contributed $5 in aggregate to ICE LP and ICE II LP.
In addition, during the year ended December 31, 2022, the REIT contributed $22,123 to Park 8Ninety II, Corridor Park and Park 8Ninety V equity
accounted investments.
The REIT is contingently liable for the obligations of certain associates and joint ventures. As at December 31, 2022, the co-owners' share of mortgage
liabilities was $49,982 (December 31, 2021, $30,388). Management has assessed that the assets available from its associates and joint ventures are
sufficient for the purpose of satisfying such obligations.
Summarized financial information of the REIT's share in its equity accounted investments is as follows:
December 31, 2022
December 31, 2021
Iris
Other
associate
Joint
ventures
Total
Iris
Other
associate
Joint
ventures
Total
$
666,538
$
—
$
212,794
$
879,332
$
—
$
—
$
233,635
$
233,635
Non-current assets:
Investment
properties
Investment
properties under
development
Other non-current
assets
Current assets:
Investment
—
12,452
7,611
—
—
823
12,452
8,434
properties held for
sale
Other current assets
102,119
20,055
—
50
19,303
7,019
121,422
27,124
Total assets
796,323
12,502
239,939
1,048,764
Non-current liabilities:
Mortgages, loans
and other debt
Current liabilities:
Mortgages, loans
and other debt
Other current
liabilities
435,007
4,255
59,159
498,421
192,715
22,416
—
178
959
193,674
8,025
30,619
Total liabilities
650,138
4,433
68,143
722,714
—
—
—
—
—
—
—
—
—
4,687
42,337
47,024
—
—
29
—
—
—
4,501
—
4,530
4,716
280,473
285,189
715
47,544
48,259
—
46,223
46,223
1,171
9,458
10,629
1,886
103,225
105,111
REIT's share of net
assets of equity
accounted
investments
$
146,185
$
8,069
$
171,796
$
326,050
$
—
$
2,830
$
177,248
$
180,078
106 | Artis Real Estate Investment Trust
2022 Annual Report | 107
Consolidated Financial StatementsConsolidated Financial Statements
Year ended
December 31, 2022
Year ended
December 31, 2021
Iris
Other
associate
Joint
ventures
Total
Iris
Other
associate
Joint
ventures
Total
Revenue
$
87,736
$
—
$
16,262
$
103,998
$
—
$
2
$
15,758
$
15,760
Operating expenses
Net operating income
Fair value (loss) gain on
investment properties
Bargain purchase gain
Other expenses and
income, net
REIT's share of net income
Deferred tax impact of
temporary differences in
Iris (1)
Net income from equity
accounted investments
45,710
42,026
18
(18)
7,376
53,104
8,886
50,894
(53,683)
111,652
5,133
—
25,240
—
(23,310)
111,652
(65,810)
(112)
(2,968)
(68,890)
34,185
5,003
31,158
70,346
4,313
—
—
4,313
—
—
—
—
—
—
—
—
2
—
—
—
2
—
6,913
6,913
8,845
8,847
10,496
10,496
—
—
(2,548)
(2,548)
16,793
16,795
—
—
Amounts in Iris' financial statements at 100%:
Revenue
Operating expenses
Bargain purchase gain
Other (expenses) income
Net income
REIT's ownership percentage
REIT's share of net income before adjustments
Adjustments:
Equity issue costs deducted from equity
Deferred tax impact of temporary differences in Iris (1)
For the period
March 1 to
December 31, 2022
$
268,796
(140,047)
342,072
(362,220)
108,601
32.64 %
35,448
(1,263)
4,313
$
38,498
$
5,003
$
31,158
$
74,659
$
—
$
2
$
16,793
$
16,795
REIT's share of net income from Iris
$
38,498
(1) The REIT's investment in Iris is through a taxable subsidiary. This adjustment reflects the estimated deferred income tax impact, primarily as a result of temporary differences relating to transaction costs and fair value adjustments.
(1) The REIT's investment in Iris is through a taxable subsidiary. This adjustment reflects the estimated deferred income tax impact, primarily as a result of temporary differences relating to transaction costs and fair value adjustments.
Iris is a material associate of the REIT. The summarized financial information of Iris on a 100% basis is presented below with reconciliations to the
REIT's carrying amount of its share of investment in Iris and net income from Iris.
Amounts in Iris' financial statements at 100%:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
REIT's ownership percentage
REIT's share of net assets in Iris
December 31,
2022
$
2,065,407
374,303
(1,332,743)
(659,040)
447,927
32.64 %
$
146,185
Note 6.
Joint operations
The REIT has interests in the following joint operations:
Property
Location
Principal purpose
Cliveden Building
Kincaid Building
Greater Vancouver Area, BC
Investment property
Greater Vancouver Area, BC
Investment property
Ownership interest
December 31,
December 31,
2022
50.00 %
50.00 %
2021
50.00 %
50.00 %
The REIT includes its proportionate share of the assets, liabilities, revenues, expenses and cash flows of the joint operations in these consolidated
financial statements.
The REIT is contingently liable for the obligations of certain joint operations. As at December 31, 2022, the co-owners' share of mortgage liabilities was
$4,097 (December 31, 2021, $4,532). Management has assessed that the assets available from its joint operations are sufficient for the purpose of
satisfying such obligations.
Note 7.
Equity securities
The REIT invests in equity securities of publicly-traded Canadian real estate entities. The equity securities are measured at fair values using quoted
market prices in active markets.
Balance, beginning of year
Purchases
Dispositions
Reclassified to equity accounted investments (note 5)
Fair value (loss) gain (note 23)
$
December 31,
December 31,
$
2022
77,186
335,971
(41,469)
(13,488)
(41,432)
2021
—
71,866
—
—
5,320
Balance, end of year
$
316,768
$
77,186
For the year ended December 31, 2022, the REIT received distributions income of $10,710 (2021, $898) and incurred commissions, service and
professional fees of $1,890 (2021, $186), inclusive of services fees paid to Sandpiper (note 27).
108 | Artis Real Estate Investment Trust
2022 Annual Report | 109
Consolidated Financial StatementsConsolidated Financial Statements
Note 8.
Property and equipment
Note 11.
Accounts receivable and other receivables
Office furniture and fixtures
Office equipment and software
Right-of-use leased assets
Accumulated depreciation
Note 9.
Notes receivable
December 31,
December 31,
2022
12,327
1,461
2,140
(10,585)
$
2021
12,236
1,432
2,018
(9,275)
5,343
$
6,411
$
$
December 31,
December 31,
Note receivable, maturing in January 2024, bearing interest at 5.00% per annum, interest-only
monthly payment until maturity, secured by an office property.
$
10,033
$
2022
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 $68 (US$50).
Note receivable, maturing in November 2024, bearing interest at 4.00% per annum, accrued
interest and principal due on maturity, secured by a parcel of land.
Other notes receivable
Current portion
Non-current portion
Note 10.
Prepaid and other assets
Prepaid insurance
Prepaid realty taxes
Prepaid acquisition, disposition and development costs
Derivative instruments (note 33)
Other prepaid expenses
2021
10,000
10,000
6,000
5,111
3,249
1,922
36,282
834
10,321
6,020
5,094
3,610
3,617
38,695
993
$
37,702
$
35,448
December 31,
December 31,
2022
$
1,958
$
356
634
5,885
3,328
$
12,161
$
2021
3,937
755
735
1,029
1,523
7,979
Rents receivable
Deferred rents receivable
Allowance for doubtful accounts
Accrued recovery income
Other receivables
$
December 31,
December 31,
$
2022
5,229
238
(2,187)
3,470
10,557
17,307
2021
5,578
955
(1,717)
3,181
6,799
14,796
Non-current portion of deferred rents receivable, net of related allowance for doubtful
accounts of $nil (December 31, 2021, $53)
—
122
Current portion
$
17,307
$
14,674
Refer to note 32 for further discussion on credit risk and allowance for doubtful accounts.
Note 12.
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,
2022
2021
$
866,736
$
1,087,521
782
(2,820)
864,698
476,129
1,604
(4,086)
1,085,039
301,910
$
388,569
$
783,129
Certain of the REIT's investment properties have been pledged as security under mortgages and other security agreements. As at December 31, 2022,
38.6% of the REIT's mortgages and loans payable bear interest at fixed rates (December 31, 2021, 36.3%), and a further 25.1% of the REIT's mortgages
and loans payable bear interest at variable rates with interest rate swaps in place (December 31, 2021, 37.5%). The weighted-average effective rate on
all mortgages and loans payable was 4.84% and the weighted-average nominal rate was 4.46% at December 31, 2022 (December 31, 2021, 3.31% and
3.04%, respectively). Maturity dates range from January 13, 2023 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.
Note 13.
Senior unsecured debentures
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
Series E
September 18, 2020
September 18, 2023
April 29, 2022
April 29, 2025
3.824 %
5.600 %
Face value
Unamortized
financing
costs
Carrying
value
Current
portion
Non-current
portion
Series D
Series E
December 31, 2022
December 31, 2021
$
$
250,000
$
200,000
450,000
$
250,000
$
$
(277)
(632)
(909)
(654)
249,723
$
249,723
$
199,368
—
449,091
$
249,723
$
249,346
—
—
199,368
199,368
249,346
110 | Artis Real Estate Investment Trust
2022 Annual Report | 111
Consolidated Financial StatementsConsolidated Financial Statements
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 April 29, 2022, the REIT issued 5.600% Series E senior unsecured debentures for gross proceeds of $200,000. Interest is payable semi-annually on
October 29 and April 29 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.
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, 2022 and 2021 the
REIT was in compliance with these requirements.
During the year ended December 31, 2022, financing cost amortization of $545 (2021, $427) was recorded.
Note 15.
Accounts payable and other liabilities
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.
In accordance with the Series D and Series E senior unsecured debenture supplemental indentures, the REIT must maintain a consolidated EBITDA to
consolidated interest expense ratio of not less than 1.65, consolidated indebtedness to aggregate assets of not more than 65% and minimum adjusted
unitholders' equity of $300,000. As at December 31, 2022 and 2021, the REIT was in compliance with these requirements.
Note 14.
Credit facilities
The REIT's unsecured credit facilities are summarized as follows:
December 31, 2022
December 31, 2021
Borrowing
capacity
Amounts
drawn
Available to
be drawn (1)
Amounts
drawn
Available to
be drawn (1)
Applicable interest rates
Revolving facilities maturing
December 14, 2024
$
400,000
$
375,346
$
24,654
$
—
$
400,000
Revolving facility maturing
April 29, 2023
Non-revolving facility
300,000
226,588
73,412
131,851
168,149
maturing February 1, 2023
50,000
50,000
Non-revolving facility
maturing February 6, 2023
100,000
100,000
Non-revolving facility
maturing July 18, 2023
Financing costs
150,000
150,000
(775)
—
—
—
150,000
200,000
150,000
(598)
—
—
—
Total credit facilities
$
1,000,000
$
901,159
$
98,066
$
631,253
$
568,149
Current portion
526,424
499,610
Non-current portion
$
374,735
$
131,643
BA rate plus 1.70% or
prime plus 0.70% or
LIBOR plus 1.70% or
U.S. base rate plus 0.70% (2)
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%
BA rate plus 1.60% or
prime plus 0.60%
BA rate plus 1.70% or
prime plus 0.70%
(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, 2022, this covenant did not limit the
total borrowing capacity of the revolving credit facilities (December 31, 2021, limited to $635,313).
(2) Under the December 1, 2022 amendment, the parties agreed to execute a further amendment on or before February 28, 2023 to provide for the discontinuance of the LIBOR Rate and to replace the availability of LIBOR Advances
with advances based on the Secured Overnight Financing Rate (see note 31(a)).
The unsecured revolving term credit facilities in the aggregate amount of $700,000 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 December 1, 2022, 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, 2022 to December 14, 2024.
All non-revolving credit facilities can be utilized for general corporate and working capital purposes, property acquisitions and development financing.
On February 4, 2022, the REIT repaid $100,000 of the $200,000 non-revolving credit facility that matured on that date and entered into an amended
agreement for the remaining balance of $100,000 with a maturity date of February 6, 2023. On May 31, June 27 and August 8, 2022, the REIT entered
into amended agreements for the other two unsecured non-revolving term credit facilities in the aggregate amount of $300,000 with the maturity dates
extended to December 1, 2022 and July 18, 2023. On December 1, 2022, the REIT entered into another amended agreement to repay $50,000 of the
$150,000 non-revolving credit facility that matured on that date and extend the maturity dates of the remaining balance. A further repayment of
$50,000 was made on December 30, 2022 with the remaining $50,000 maturing on February 1, 2023. Refer to note 34 for further amended agreements
subsequent to December 31, 2022.
Accounts payable and accrued liabilities
$
Distributions payable
Accrued interest
Accrued realty taxes
Tenant installments payable
Derivative instruments (note 33)
Cash-settled unit-based payments liability
Other payables and liabilities
Note 16.
Unitholders' equity
(a) Common units:
(i) Authorized:
December 31,
December 31,
$
2022
29,473
16,247
7,935
10,163
4,449
—
3,540
1,095
2021
36,752
47,016
6,454
10,193
7,314
7,689
4,533
1,210
$
72,902
$
121,161
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.
(ii) Issued and outstanding:
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 18)
Balance at December 31, 2021
Restricted 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 18)
Number of
units
Amount
134,643,175
$
1,754,601
26,172
12,953
(10,967,022)
(170,742)
—
123,544,536
20,974
(8,134,776)
(21,500)
—
293
135
(142,912)
(2,225)
256,091
1,865,983
230
(123,195)
(325)
9,234
Balance at December 31, 2022
115,409,234
$
1,751,927
(1) The common units issued as part of the special distribution declared on December 31, 2022 and 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.
112 | Artis Real Estate Investment Trust
2022 Annual Report | 113
Consolidated Financial StatementsConsolidated Financial Statements
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. 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 E Units and Series I Units rank equally with each other and with the outstanding Series F Units and Series J Units into which they may be
reclassified, and rank in priority to the trust units.
(c) Normal course issuer bid:
On December 15, 2022, 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 6, 2022 as follows:
Common units
Preferred unit series:
Series E
Series I
Public float
10% of public
float
78,609,420
7,860,942
3,610,010
4,805,340
361,001
480,534
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 18, 2023, or the date on
which the REIT has purchased the maximum number of units permitted under the bid. During the year ended December 31, 2022, the REIT acquired
8,156,276 common units at market prices aggregating $100,572, resulting in contributed surplus of $22,948, which was the excess of stated capital over
redemption proceeds. During the year ended December 31, 2022, the REIT also acquired 47,300, 94,400 and 68,800 Series A, E and I Units,
respectively, at market prices aggregating $5,087, resulting in reduction of contributed surplus of $14, which was the excess of redemption proceeds
over stated capital.
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.
(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, 2022, the REIT had not issued any securities
under this short form base shelf prospectus.
(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
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
Units acquired and cancelled through normal course issuer bid
Units acquired through normal course issuer bid, not cancelled at year end
Preferred units redeemed
(47,300)
—
(3,248,300)
(92,200)
(2,200)
—
(66,700)
(2,100)
(206,200)
(4,300)
—
(3,248,300)
Number of units outstanding at December 31, 2022
—
3,605,110
4,896,740
8,501,850
The carrying value of the REIT's outstanding preferred units are as follows:
Annual distribution rate
Distribution rate reset date
Series A
5.662%
Series E
5.472%
—
September
30, 2023
Series I
6.000%
April 30,
2023
Total
Carrying value at December 31, 2020
$
79,911
$
91,423
$
120,468
$
291,802
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
Units acquired and cancelled through normal course issuer bid
Units acquired through normal course issuer bid, not cancelled at year end
Preferred units redeemed
Carrying value at December 31, 2022
Face value at December 31, 2022
Face value at December 31, 2021
(i) Series A:
(1,419)
(24)
78,468
(1,126)
—
(77,342)
(2,102)
(36)
89,285
(2,226)
(53)
—
—
—
120,468
(1,617)
(51)
—
(3,521)
(60)
288,221
(4,969)
(104)
(77,342)
$
$
—
$
87,006
$
118,800
$
205,806
—
$
90,128
$
122,419
$
82,390
92,488
124,139
212,547
299,017
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%. On September 30, 2022, the REIT redeemed all 3,248,300 outstanding Series A Units with an aggregate face
value of $81,208.
(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%.
114 | Artis Real Estate Investment Trust
2022 Annual Report | 115
Consolidated Financial StatementsConsolidated Financial Statements
(e) Weighted-average common units:
(b) Deferred units:
Net income
Adjustment for distributions to preferred unitholders (note 18)
Net (loss) income attributable to common unitholders
Adjustment for restricted units
Adjustment for deferred units
Year ended
December 31,
2021
2022
$
(5,294)
$
(15,856)
(21,150)
(484)
(1,241)
389,175
(17,260)
371,915
511
(574)
Diluted net (loss) income attributable to common unitholders
$
(22,875)
$
371,852
The weighted-average number of common units outstanding was as follows:
Unit-based compensation expense related to deferred units outstanding under the equity incentive plan for the year ended December 31, 2022
amounted to $245 (2021, $442). Deferred units can only be granted to trustees of the REIT and vest immediately. Deferred units are redeemable
within a specified time frame after a trustee ceases to be a trustee. The deferred units accrue additional deferred units after the grant date. Each
deferred unit is valued at the closing price of the REIT's common units on the balance sheet date.
The REIT's deferred units outstanding are as follows:
Balance, beginning of year
Granted
Accrued
Redeemed
Balance, end of year
Deferred units vested at end of year
Year ended
December 31,
2021
2022
Number of units
Number of units
133,552
57,244
12,634
—
203,430
203,430
92,908
60,474
27,112
(46,942)
133,552
133,552
Basic common units
Effect of dilutive securities:
Restricted units
Deferred units
Diluted common units
117,932,876
129,553,433
356,076
180,635
366,757
105,727
118,469,587
130,025,917
(c) Unit options:
Net (loss) income per unit attributable to common unitholders:
Basic
Diluted
$
(0.18)
(0.19)
$
2.87
2.86
(d) Installment units:
At December 31, 2022 and 2021, no installment units had been granted under the REIT's equity incentive plan.
At December 31, 2022 and 2021, no unit options had been granted under the REIT's equity incentive plan.
The computation of diluted net (loss) income per unit attributable to common unitholders includes restricted units and deferred units when these
instruments are dilutive. For the year ended December 31, 2022 and 2021 there were no anti-dilutive units.
Note 17.
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, 2022
amounted to $1,168 (2021, $2,915)). Restricted units vest on and after the third anniversary of the date of grant. The restricted units accrue additional
restricted units during the vesting period, and are credited when the restricted units are redeemed. Each restricted unit is valued at the closing price
of the REIT's common units on the balance sheet date.
The REIT's restricted units outstanding are as follows:
Balance, beginning of year
Granted
Accrued
Redeemed
Expired
Balance, end of year
Restricted units vested at end of year
Year ended
December 31,
2021
2022
Number of units
Number of units
462,891
185,600
31,457
(208,063)
(31,268)
440,617
20,702
404,937
153,915
97,404
(172,412)
(20,953)
462,891
12,068
Note 18.
Distributions to unitholders
Total distributions declared to unitholders were as follows:
Year ended
December 31, 2022
Year ended
December 31, 2021
Total
distributions
Distributions
per unit
Total
distributions
Distributions
per unit
Common unitholders
Monthly distributions paid and payable in cash
$
70,372
$
Special distribution payable in cash
Special distribution payable in units
Preferred unitholders - Series A
Preferred unitholders - Series E
Preferred unitholders - Series I
9,234
9,234
88,840
3,461
4,973
7,422
0.60
0.08
0.08
0.76
1.06
1.37
1.50
$
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
In December, 2022, the Board of Trustees declared a special distribution of $0.16 per common unit, which was comprised of $0.08 per common unit
payable in cash and $0.08 per common unit payable in common units. In December, 2021, 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 distributions were payable on December 31, 2022 and 2021 to unitholders of record at the close of business on December 31, 2022 and 2021,
respectively. The special distributions were principally made to distribute to common unitholders a portion of the capital gain realized by the REIT from
transactions completed during the years ended December 31, 2022 and 2021. Immediately following the issuance of common units on December 31,
2022 and 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, 2022, the special distributions declared in common units of $9,234 (2021
- $256,091) was recorded as capital contributions.
116 | Artis Real Estate Investment Trust
2022 Annual Report | 117
Consolidated Financial StatementsConsolidated Financial Statements
Note 19.
Revenue
Note 21.
Interest expense
The REIT's revenue is made up of the following significant categories:
Base rent
Operating cost and realty tax recoveries
Parking and other revenue
Tenant inducements amortized to revenue
Straight-line rent adjustments
Lease termination income
Rental revenue from investment properties
Condominium sales
$
$
Year ended
December 31,
2021
259,461
148,678
11,984
(24,765)
3,405
2,875
401,638
17,861
2022
241,234
137,782
10,025
(25,405)
1,379
7,497
372,512
—
$
372,512
$
419,499
Refer to note 29 for a disaggregation of revenue by reportable geographical region.
The REIT leases industrial, office and retail properties to tenants under operating leases. Minimum rental commitments on non-cancellable tenant
operating leases over their remaining terms were as follows:
Not later than one year
One to two years
Two to three years
Three to four years
Four to five years
Later than five years
Note 20.
Interest and other income
Interest on junior preferred units of Iris (note 5)
Interest on notes receivable
Other
$
December 31,
December 31,
$
2022
226,816
207,145
186,235
154,818
129,051
448,926
2021
243,363
216,381
190,052
155,783
127,128
468,143
$
1,352,991
$
1,400,850
Year ended
December 31,
2021
—
1,190
695
1,885
2022
15,713
$
1,738
1,493
18,944
$
$
$
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
Note 22.
Corporate expenses
Accounting, legal and consulting
Public company costs (1)
Salaries and benefits (2)
Depreciation of property and equipment
General and administrative
$
Year ended
December 31,
2021
36,751
10,876
19,486
(799)
3,334
$
2022
36,175
17,130
33,851
(896)
3,177
$
89,437
$
69,648
Year ended
December 31,
2021
3,262
1,837
4,999
1,362
1,067
2022
1,774
1,116
2,722
1,254
795
$
7,661
$
12,527
(1) Includes public reporting costs, investor communications costs, and trustee fees and expenses. For the year ended December 31, 2022, trustee fees include fair value gain on unit-based compensation of $577 (2021, fair value loss
of $131).
(2) For the year ended December 31, 2022, salaries and benefits include fair value gain on unit-based compensation of $484 (2021, fair value loss of $511).
Note 23.
Fair value (loss) gain on financial instruments
The REIT recorded (losses) gains on the following:
Interest rate swaps
Foreign currency contracts
Other derivatives
Equity securities (note 7)
2022
$
19,525
$
—
777
(41,432)
Year ended
December 31,
2021
15,966
305
(367)
5,320
$
(21,130)
$
21,224
118 | Artis Real Estate Investment Trust
2022 Annual Report | 119
Consolidated Financial StatementsConsolidated Financial Statements
Note 24.
Income taxes
The following table reconciles the expected income taxes based on the Canadian statutory tax rate and the income tax expense recognized for the
years ended December 31, 2022 and 2021:
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,
2022 and 2021.
The REIT is subject to corporate income taxes in Canada and the U.S. through its Canadian subsidiary that holds the investment in Iris and its U.S.
management subsidiary.
Income tax expense comprised of:
Current income tax expense
Deferred income tax (recovery) expense, net
Income tax expense
Year ended
December 31,
2021
1,332
(43)
1,289
2022
735
13,620
14,355
$
$
$
$
The tax effects of temporary differences that give rise to the deferred tax liabilities are presented below:
Equity accounted investment
Property and equipment
Other
Deferred tax liabilities (1)
December 31,
2022
December 31,
2021
$
$
9,323
$
183
19
9,525
$
—
186
15
201
(1) The deferred tax liabilities balance as at December 31, 2021 was included in accounts payable and other liabilities for financial statement presentation in 2021.
Changes in the deferred tax liabilities consist of the following:
Balance, beginning of year
Deferred tax expense (recovery) recognized in net income
Deferred tax recovery recognized in income from equity investments (note 5)
Foreign currency translation of deferred tax balance
Balance, end of year
December 31,
2022
December 31,
2021
$
$
201
$
13,620
(4,313)
17
9,525
$
245
(43)
—
(1)
201
Deferred tax liabilities have not been recognized for the temporary differences associated with the REIT's investments in the U.S. subsidiaries that are
REITs for U.S. income tax purposes. These temporary differences are primarily differences between the carrying amounts and the tax basis of
investment properties in the U.S.
Income before income taxes
Less:
Year ended
December 31,
2021
2022
$
9,061
390,464
Income distributed and not subject to income tax
38,917
(386,876)
Income subject to income tax in subsidiary corporations
Statutory tax rate (1)
Tax calculated at statutory tax rate
Increase (decrease) resulting from:
Effect of different tax rate in U.S.
Non-taxable gain
Other items
Income tax expense
47,978
50.67 %
24,310
(494)
(10,419)
958
3,588
50.67 %
1,818
(1,127)
—
598
$
14,355
$
1,289
(1) The statutory tax rate includes refundable dividend tax on hand (RDTOH) of 30.67%, which applies to the income in the taxable subsidiary with the investment in Iris (note 5). This income tax is refundable at the rate of 38.33%
when taxable dividends are paid.
For the year ended December 31, 2022, in connection with the income distributions made by the REIT's US subsidiaries to the Canadian parent entity,
withholding taxes in the amount of $49,632 was paid to the tax authorities and included in distributions. The benefit of the withholding taxes paid are
allocated to the unitholders in the form of foreign tax credits.
Note 25.
Supplemental cash flow information
(a) Other items not affecting cash:
Tenant inducements amortized to revenue
Straight-line rent adjustments
Depreciation of property and equipment
Unit-based compensation
Amortization of above- and below-market mortgages, net
Amortization of financing costs included in interest expense
(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
$
Year ended
December 31,
2021
24,765
(3,405)
1,362
2,050
(799)
3,334
$
2022
25,405
(1,379)
1,254
(721)
(896)
3,177
$
26,840
$
27,307
2022
$
—
$
1,569
(1,801)
(7,908)
4,078
Year ended
December 31,
2021
15,058
428
3,650
1,878
(4,957)
$
(4,062)
$
16,057
120 | Artis Real Estate Investment Trust
2022 Annual Report | 121
Consolidated Financial StatementsConsolidated Financial Statements
(c) Other supplemental cash flow information:
Interest paid
Interest received
Income taxes paid
Note 26.
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.
Artis Property Management General Partner Ltd.
AX Property Management L.P.
Winnipeg Square Leaseco, Inc.
AX QC Ltd.
AR GL General Partner Ltd.
AR GL Limited Partnership
ICE LP
ICE II LP
IRIS Acquisition II LP
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 (1)
Park 8Ninety Phase V, LP
Artis/Core Park West Land, Ltd.
Tower Business Center L.P.
ARTIS HRA Inverness Point GP, LLC
ARTIS HRA Inverness Point, LP
USCIF Artis Park Lucero Venture LP
Country
Canada
Canada
Canada
Canada
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.
2022
$
88,415
$
3,256
736
Year ended
December 31,
2021
71,563
1,734
1,437
Ownership interest
December 31,
December 31,
2022
2021
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
75.00 %
75.00 %
50.00 %
50.00 %
32.64 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
95.00 %
90.00 %
80.00 %
50.00 %
50.00 %
10.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
75.00 %
75.00 %
— %
— %
— %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
95.00 %
95.00 %
90.00 %
80.00 %
50.00 %
50.00 %
10.00 %
(1) On September 30, 2022, the REIT increased its ownership interest in this property to 100%. Effective as of September 30, 2022, the REIT no longer discloses its interests in this property as a joint venture. See note 3 for further
information.
Note 27.
Related party transactions
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 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.
Fees paid and accrued to Sandpiper were as follows:
Space sharing licence costs
Service fees
Year ended
December 31,
2021
83
111
194
2022
124
1,231
1,355
$
$
$
$
Amounts payable to Sandpiper were $446 as at December 31, 2022 (December 31, 2021, $76).
In connection with the investment in Iris on March 1, 2022, the REIT entered into two joint ventures, ICE LP and ICE II LP, with Sandpiper and an affiliate
of Sandpiper (see note 5). As at December 31, 2022, the REIT had a balance payable to ICE II LP of $738.
Note 28.
Key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the REIT,
directly or indirectly.
The remuneration of Trustees and key management personnel was as follows:
Year ended
December 31,
2021
7,387
1,571
8,958
2022
6,347
1,413
7,760
$
$
$
$
Short-term benefits
Unit-based compensation
(a) Short-term benefits:
Short-term employee benefits include salaries, bonuses and other short-term benefits.
(b) Unit-based compensation:
Refer to note 17 for more information on the REIT's equity incentive plan.
Note 29.
Segmented information
The REIT owns and operates properties located in Canada and the U.S., through direct ownership and equity accounted investments. These
properties are managed and reported internally by country. The segmented information for Canada and U.S. presented below includes the REIT's
proportionate share of revenue, expenses, assets and liabilities of investment properties held in equity accounted investments which were set up to
develop and operate specific investment properties. Other income (expenses), including interest expense relating to senior unsecured debentures and
credit facilities, interest income from notes receivables not related to owned investment properties, distribution income from equity securities and fair
value gain (loss) on financial instruments, have not been allocated to the segments. In addition, the REIT's investments in Iris Acquisition II LP, ICE LP
and ICE II LP ("Iris Entities" - see note 5) are considered separately by executive management and evaluated based on the distributions received.
Accordingly, the investments in Iris Entities are not allocated to the segments.
122 | Artis Real Estate Investment Trust
2022 Annual Report | 123
Consolidated Financial StatementsConsolidated Financial Statements
Year ended December 31, 2022
Equity
accounted
investment
properties
adjustment (2)
Total
Canada
U.S.
REIT (1)
Year ended December 31, 2021
Equity
accounted
investment
properties
adjustment (2)
Total
Canada
U.S.
REIT (1)
Revenue:
Revenue:
Rental revenue from investment properties
$
170,821 $
217,856 $
97 $
(16,262) $
372,512
Rental revenue from investment properties
$
204,799 $
212,496 $
103 $
(15,760) $
401,638
Condominium sales
Total revenue
Expenses:
Property operating
Realty taxes
Condominium cost of sales
Total operating expenses
Net operating income
Other income (expenses):
Interest and other income
Distribution income from equity securities
Interest expense
Corporate expenses
Equity securities expenses
Net income from equity accounted investments
Fair value loss on investment properties
Fair value loss on financial instruments
Foreign currency translation loss
—
—
170,821
217,856
51,162
26,605
—
55,260
36,899
—
77,767
92,159
93,054
125,697
40
—
531
—
(13,880)
(26,792)
—
—
—
—
—
—
(59,418)
(88,640)
—
—
—
—
—
97
—
—
—
—
97
18,387
10,710
(52,665)
(7,661)
(1,890)
39,321
—
(21,130)
(6,683)
Income (loss) before income taxes
19,796
10,796
(21,514)
—
—
(16,262)
372,512
(3,972)
(3,422)
—
102,450
60,082
—
(7,394)
162,532
(8,868)
209,980
(14)
—
3,900
—
—
35,338
(30,373)
—
—
(17)
17
18,944
10,710
(89,437)
(7,661)
(1,890)
74,659
(178,431)
(21,130)
(6,683)
9,061
(14,355)
Income tax expense
Net income (loss)
Acquisitions of investment properties
$
$
19,796 $
10,060 $
(35,150) $
— $
(5,294)
— $
5,219 $
— $
— $
5,219
Additions to investment properties, investment properties
under development and investment properties held for sale
Additions to tenant inducements
Additions to leasing commissions
41,482
6,375
1,521
63,183
31,529
12,470
—
—
—
(17,703)
(1,359)
(1,936)
86,962
36,545
12,055
December 31, 2022
Equity
accounted
investment
properties
adjustment (2)
Total
Canada
U.S.
REIT
Total assets
Total liabilities
$
1,897,378 $
2,098,827 $
629,546 $
(71,838) $
4,553,913
372,166
634,781
1,389,645
(71,838)
2,324,754
(1) Includes corporate expenses. interest relating to senior unsecured debentures and credit facilities, distribution income from equity securities, fair value gain (loss) on financial instruments and income from Iris Entities that are not
allocated to the segments.
(2) Adjustment for the REIT's proportionate share of revenue, expenses, assets and liabilities of investment properties held in equity accounted investments, excluding Iris Entities.
Condominium sales
Total revenue
Expenses:
Property operating
Realty taxes
Condominium cost of sales
Total operating expenses
Net operating income
Other income (expenses):
Interest and other income
Distribution income from equity securities
Interest expense
Corporate expenses
Equity securities expenses
Strategic initiative expenses
Transaction costs
Net income from equity accounted investments
Fair value gain on investment properties
Fair value gain on financial instruments
Foreign currency translation loss
17,861
—
222,660
212,496
53,844
30,760
16,038
50,610
37,375
—
100,642
87,985
—
103
—
—
—
—
—
17,861
(15,760)
419,499
(3,635)
(3,278)
—
100,819
64,857
16,038
(6,913)
181,714
122,018
124,511
103
(8,847)
237,785
62
—
558
—
(16,916)
(23,316)
—
—
—
—
—
—
—
—
(11)
—
184,883
23,124
—
—
—
—
1,269
898
(31,962)
(12,527)
(186)
(18)
—
—
—
21,224
(3,244)
(4)
—
2,546
—
—
—
—
16,795
(10,496)
—
—
(6)
6
1,885
898
(69,648)
(12,527)
(186)
(18)
(11)
16,795
197,511
21,224
(3,244)
390,464
(1,289)
Income tax expense
Net income (loss)
Acquisitions of investment properties
—
(1,295)
—
$
$
290,047 $
123,571 $
(24,443) $
— $
389,175
— $
5,823 $
— $
— $
5,823
Additions to investment properties, investment properties
under development and investment properties held for sale
Additions to tenant inducements
Additions to leasing commissions
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
investment
properties
adjustment (2)
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
(1) Includes corporate expenses. interest relating to senior unsecured debentures and credit facilities, distribution income from equity securities, fair value gain (loss) on financial instruments and income from Iris Entities that are not
allocated to the segments.
(2) Adjustment for the REIT's proportionate share of revenue, expenses, assets and liabilities of investment properties held in equity accounted investments, excluding Iris Entities.
—
(736)
(13,636)
Income (loss) before income taxes
290,047
124,866
(24,443)
124 | Artis Real Estate Investment Trust
2022 Annual Report | 125
Consolidated Financial StatementsConsolidated Financial Statements
Note 30.
Commitments, contingencies and guarantees
Note 32.
Risk management
(a) Unconditional sale agreement:
The REIT entered into an agreement to sell a portfolio comprised of six industrial properties located in the Twin Cities Area, Minnesota, for a sale price
of $101,343 (US $74,825), with expected closing in March 2023.
(b) Letters of credit:
As at December 31, 2022, the REIT had issued letters of credit in the amount of $63 (December 31, 2021, $75).
(c) Contingencies:
The REIT is contingently liable for bonds that have been provided to support industrial development projects in the amount of $4,288 (December 31,
2021, $5,842).
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.
(d) Guarantees:
At December 31, 2022, the REIT has guaranteed certain debt assumed by purchasers in connection with the dispositions of two properties (December
31, 2021, two 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, 2022 was $41,639 (December 31, 2021, $43,586), with an estimated weighted-average
remaining term of 0.4 years (December 31, 2021, 1.4 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 31.
Capital management
The REIT's objectives when managing capital are to safeguard the ability to continue as a going concern and to generate sufficient returns to provide
unitholders with stable cash distributions. The REIT defines capital as mortgages and loans payable, senior unsecured debentures, credit facilities and
unitholders' equity.
The REIT's Declaration of Trust permits the REIT to incur indebtedness, provided that after giving effect to incurring or assuming any indebtedness (as
defined in the Declaration of Trust), the amount of such indebtedness of the REIT is not more than 70% of the gross book value of the REIT's total
assets. As at December 31, 2022, the ratio of indebtedness to gross book value was 48.5% (December 31, 2021, 42.9%), which is consistent with the
REIT's objectives. Gross book value is defined as the consolidated book value of the assets of the REIT, plus the amount of accumulated depreciation
of property and equipment. Total debt includes mortgages and loans, debentures, preferred shares liabilities and credit facilities. As at December 31,
2022, the REIT is in compliance with the requirement in the Declaration of Trust.
The total managed capital for the REIT is summarized below:
Mortgages and loans payable
Senior unsecured debentures
Credit facilities
Total debt
Unitholders' equity
Note
12
13
14
$
December 31,
December 31,
2022
864,698
449,091
901,159
2,214,948
2,229,159
2021
$
1,085,039
249,346
631,253
1,965,638
2,455,353
$
4,444,107
$
4,420,991
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 the REIT's debt financing is in fixed rate
terms or variable 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, 2022, the REIT had variable rate debt, including credit facilities, of
$1,434,072 (December 31, 2021, $1,324,662). At December 31, 2022, the REIT had entered into interest rate swaps to hedge the interest rate risk
associated with $217,136 of variable rate debt, including swaps on credit facilities (December 31, 2021, $907,516).
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
$
$
8,416
5,544
13,960
The REIT has variable rate debts and interest rate swaps linked to US dollar LIBOR ("USD LIBOR") and Bankers' Acceptance ("BA") rate, which
are 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
after June 30, 2023. In 2022, the REIT undertook amendments to most LIBOR-linked financial instruments to switch the reference rate from USD
LIBOR to the alternative reference rate, the Secured Overnight Financing Rate ("SOFR"), or include appropriate fallback clauses to the same
effect when USD LIBOR ceases. The remaining LIBOR-linked financial instruments will mature prior to June 30, 2023, with the remainder to be
transitioned prior to June 30, 2023.
Canadian Dollar Offered Rate ("CDOR") is a benchmark reference rate for BA borrowings denominated in Canadian dollars that is administered
by Refinitive Benchmark Services (UK) Limited ("RBSL"). In May, 2022, RBSL published a notice stating that the calculation and publication for all
tenors of CDOR will cease after June 28, 2024. The Canadian Alternative Reference Rate Working Group recommends the transition to the
Canadian Overnight Repo Rate Average ("CORRA") as a key financial benchmark for Canadian derivatives and securities. The REIT is monitoring
the transition and intends to negotiate with counterparties to incorporate fallback provisions in its debt agreements as appropriate.
As at December 31, 2022, the REIT had variable rate debt and interest rate swaps linked to USD LIBOR and CDOR as follows:
Financial assets:
Interest rate swaps (1)
Financial liabilities:
Mortgages and loans payable (2)
Credit facilities (2)
(1) Interest rate swaps are disclosed at the fair values as at December 31, 2022.
(2) Mortgages and loans payable and credit facilities are disclosed at the outstanding balances as at December 31, 2022.
December 31, 2022
USD LIBOR
CDOR
Maturing after June
30, 2023
Maturing after June
28, 2024
$
$
$
5,157
$
—
$
90,420
75,846
—
299,500
166,266
$
299,500
126 | Artis Real Estate Investment Trust
2022 Annual Report | 127
Consolidated Financial StatementsConsolidated Financial Statements
(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 1.3030 for the year ended December 31,
2022, and the year-end exchange rate of 1.3544 at December 31, 2022, would have decreased net loss by $31,375 for the year ended December
31, 2022. A $0.10 weakening in the US dollar against the Canadian dollar would have decreased other comprehensive income by approximately
$129,098 for the year ended December 31, 2022. 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, notes receivable and preferred investments.
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 five 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.
Included in property operating expenses are expected credit losses of $1,189 during the year ended December 31, 2022 (2021, $574).
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
The changes to the REIT's allowance for doubtful accounts were as follows:
Balance, beginning of year
Additional provisions recorded
Reversal of previous provisions
Amounts written-off
Foreign currency translation loss
Balance, end of year
$
$
December 31,
December 31,
$
2022
1,778
517
2,934
5,229
2021
2,630
623
2,325
5,578
December 31,
December 31,
$
2022
1,717
1,452
(264)
(746)
28
$
2,187
$
2021
1,989
1,393
(819)
(852)
6
1,717
The REIT is also exposed to credit risk as a holder of notes receivable and preferred investments. Management mitigates this risk by carrying out credit
checks and related due diligence on the issuers 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 issuers' ability to repay.
(c) Liquidity risk:
Liquidity risk is the risk that the REIT will not be able to meet its financial obligations as they come due. The REIT manages liquidity risk by maintaining
adequate cash and by having appropriate credit facilities available. In addition, the REIT continuously monitors and reviews both actual and forecasted
cash flows.
The following are the estimated maturities of the REIT's financial liabilities at December 31, 2022 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.
After 5
years
—
243
—
—
Total
Less than
1 year
1 - 3 years
4 - 5 years
Accounts payable and other liabilities
$
72,581
$
72,581
$
Lease liabilities
Credit facilities
Senior unsecured debentures
Mortgages and loans payable
1,237
901,934
450,000
866,736
321
526,588
250,000
555,451
$
—
380
375,346
200,000
135,962
$
—
293
—
—
103,678
71,645
$
2,292,488
$
1,404,941
$
711,688
$
103,971
$
71,888
Subsequent to December 31, 2022, the $100,000 non-revolving credit facility that matured on February 6, 2023 was extended to February 6, 2024, the
$150,000 non-revolving credit facility maturing on July 18, 2023 was extended to July 18, 2024, and the $300,000 revolving credit facility maturing on
April 29, 2023 was replaced with a $280,000 revolving credit facility maturing on April 29, 2025 (see note 34).
Note 33.
Fair value measurements
The REIT uses a three-level hierarchy that reflects the significance of the inputs used in making fair value measurements of its financial instruments and
its investment properties. Level 1 of the fair value hierarchy uses quoted market prices in active markets for identical assets or liabilities to determine
the fair value of assets and liabilities. Level 2 includes valuations using inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly. Level 3 valuations are based on inputs for the asset or liability that are not based on observable market data.
There were no transfers of assets or liabilities between hierarchy levels during the year ended December 31, 2022 and 2021.
December 31, 2022
December 31, 2021
Fair value
hierarchy
Carrying
value
Fair value
Carrying
value
Fair value
Assets:
Investment properties
Investment properties under development
Preferred investments
Equity securities
Notes receivable
Investment properties held for sale
Derivative instruments
Liabilities:
Mortgages and loans payable
Senior unsecured debentures
Credit facilities
Derivative instruments
Level 3
Level 3
Level 2
Level 1
Level 2
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
$
3,156,206
$
3,156,206
$
3,741,544
$
3,741,544
191,552
114,184
316,768
38,695
335,813
5,885
191,552
113,239
316,768
36,212
335,813
5,885
195,161
195,161
—
77,186
36,282
62,904
1,029
—
77,186
36,473
62,904
1,029
4,159,103
4,155,675
4,114,106
4,114,297
864,698
449,091
901,159
—
842,138
436,609
901,934
—
1,085,039
1,088,737
249,346
631,253
7,689
254,346
631,851
7,689
2,214,948
2,180,681
1,973,327
1,982,623
$
1,944,155
$
1,974,994
$
2,140,779
$
2,131,674
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 prices on the principal securities exchange on which
the majority of the trading occurs.
The fair values of preferred investments, 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 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.
128 | Artis Real Estate Investment Trust
2022 Annual Report | 129
Consolidated Financial StatementsConsolidated Financial Statements
Note 34.
Subsequent events
The following events occurred subsequent to December 31, 2022:
•
•
•
•
•
•
•
•
•
•
•
•
The REIT received full repayment of a note receivable in the amount of $6,000.
The REIT entered into an unconditional sale agreement to sell an office property located in Saskatoon, Saskatchewan, for a sale price of $14,550
with expected closing in March 2023.
The REIT entered into an amended agreement to extend the maturity date of the $50,000 non-revolving credit facility to April 3, 2023, at an
interest rate of BA rate plus 1.70% or prime plus 0.70%.
The REIT entered into an amended agreement to extend the maturity date of the $100,000 non-revolving credit facility to February 6, 2024, at an
interest rate of BA rate plus 1.70% or prime plus 0.70%.
The REIT entered into an amended agreement to extend the maturity date of the $150,000 non-revolving credit facility to July 18, 2024, at an
interest rate of BA rate plus 1.70% or prime plus 0.70%. The amended agreement provides for CORRA as the Canadian benchmark replacement
rate on Canadian dollar term advances when the publication of CDOR ceases.
The REIT entered into an amended and restated agreement to reduce the $300,000 revolving credit facility to $280,000 and extend the maturity
date from April 29, 2023 to April 29, 2025. The amended and restated agreement amends the interest rate on US dollar term advances for all
revolving credit facilities to SOFR plus 1.70%, to provide for the cessation of the LIBOR rate. In addition, the amended and restated agreement
provides for CORRA as the Canadian benchmark replacement rate on Canadian dollar term advances when the publication of CDOR ceases.
The REIT repaid a net balance of $1,000 and repaid a net balance of $16,122 (US$12,000) on its revolving term credit facilities.
The REIT repaid mortgages in the amount of $38,745 (US$28,867) and received new mortgage financing in the amount of $49,661 (US$37,000).
The REIT purchased through the NCIB 10,900 common units at a weighted-average price of $9.00, 13,700 Series E Units at a weighted-average
price of $23.52 and 18,700 Series I Units at a weighted-average price of $24.87.
The REIT sold equity securities for aggregate net proceeds of $19,477.
The REIT declared a monthly cash distribution of $0.05 per common unit for the months of January and February 2023.
The REIT declared a quarterly cash distribution of $0.3750 per Series I Unit for the three months ended January 31, 2023.
Note 35.
Comparative figures
Certain comparative figures in the consolidated statements of operations and note 29 segmented reporting for the year ended December 31, 2021
have been reclassified to conform with the financial statement presentation adopted for the year ended December 31, 2022. Equity securities
expenses were previously included in corporate expenses for the year ended December 31, 2021 and are now presented as a separate line item on the
consolidated statements of operations and segmented reporting. This reclassification is intended to provide additional details on the REIT's results of
operations.
Certain comparison figures in the consolidated statements of cash flows for the year ended December 31, 2021 have been reclassified to conform with
the financial statement presentation adopted for the year ended December 31, 2022. Changes in accrual balances relating to additions to investment
properties, additions to investment properties under development and purchases of equity securities were previously included in changes in non-cash
operating items and are now included with the respective line item on the consolidated statements of cash flows. The reclassifications are intended to
better represent cash provided by operating activities and investing activities.
Note 36.
Approval of financial statements
These consolidated financial statements were approved by the Board of Trustees and authorized for issue on February 28, 2023.
130 | Artis Real Estate Investment Trust
2022 Annual Report | 131
Consolidated Financial Statements T: +1 204 947 1250
F: +1 204 947 0453
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Winnipeg, MB R3C 0A5
132 | Artis Real Estate Investment Trust