2023
ANNUAL REPORT
ARTIS REAL ESTATE INVESTMENT TRUST
TSX: AX.UN
ON THE COVER:
300 MAIN
Winnipeg, Manitoba
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 2023 Annual MD&A.
EQUITY ACCOUNTED INVESTMENTS
At December 31, 2023, the REIT’s portfolio was comprised of 119 commercial
properties totalling approximately 13.7 million square feet of gross leasable
area. The REIT also has joint ownership interest in 11 investment properties, one
parcel of development land and properties acquired as part of the acquisition of
Cominar Real Estate Investment Trust (the “Cominar Transaction”), which have
been excluded from financial and operating metrics throughout this Annual Report,
unless otherwise noted. Refer to the Equity Accounted Investments section of the
2023 Annual MD&A for further information.
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 for the years ended December 31,
2023, 2022 and 2021 and the REIT’s annual Management’s Discussion and Analysis
(“MD&A”) for 2023, 2022 and 2021. These documents are available on SEDAR+ at
www.sedarplus.ca 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 REIT’s strategy, real property ownership, geographic concentration, current
economic conditions, strategic initiatives, pandemics and other public health
events, 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 systems, cyber security, environmental matters and climate change,
land and air rights leases, public market, market price of units, changes in
legislation and investment eligibility, availability of cash flow, fluctuations in cash
distributions, the nature of trust units, legal rights attaching to trust 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 2023 Annual MD&A and the section
entitled “Risk Factors” in the REIT’s Annual Information Form dated February 29,
2024, 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 ...............................................................23
Capital allocation ...................................................................................................................... 24
Environmental, Social and governance ...................................................................... 27
outlook ..............................................................................................................................................30
corporate information ...........................................................................................................30
Management’s discussion & analysis ............................................................................33
consolidated financial statements ................................................................................ 81
STINSON OFFICE PARK
Minneapolis, Minnesota
When we announced our vision and strategy for Artis in March 2021,
we gave ourselves a two-to-three-year timeline to execute our new
plan. At the same time, we recognized that value investing by nature
requires patience. Nobody controls the market. Value investing is
based on the fundamental premise of “buying low and selling high”,
but selling high is dependent on both internal and external factors
and often one has to time the market to achieve the desired and
optimal outcome. In my March 2023 annual letter to unitholders,
mindful of the fact that we were entering our third year, I was clear
that if our units continued to trade at a significant discount, market
permitting, we would consider other options available to achieve
and fulfill our commitment to Artis’s unitholders – maximizing the
value of their investment. With this in mind, in August of last year,
Artis’s Board announced a strategic review process to consider and
evaluate alternatives that may be available to the REIT to unlock and
maximize value for unitholders. A Special Committee was formed,
comprising Ben Rodney (Chair of Artis’s Board), Lis Wigmore (Chair
of Artis’s Governance, Nominating, and Compensation Committee)
and myself. The Board and Special Committee retained BMO Capital
Markets to provide advisory services in connection with the strategic
review. With the strategic review underway, the Special Committee,
alongside our advisors, began the process of evaluating all options
with the singular goal of closing the substantial gap between our
trading price and the intrinsic value of Artis’s units for our owners.
The work we have undertaken over the past seven months enabled
us to properly assess the current environment and options available
to maximize value for our unitholders. We have explored various
alternatives, including the potential sale of the REIT. Given the current
market conditions, we do not believe that there is a buyer prepared to
acquire the REIT at a reasonable value relative to our NAV; however,
there remains healthy interest from potential buyers for high-quality
retail, industrial, and office assets. In today’s market, office buyers
are generally expecting bargain prices or vendor financing, neither of
which are compatible with our goal of generating financial liquidity
from dispositions. Between announcing the strategic review in
August 2023 and filing our 2023 annual results on February 29,
2024, we completed or entered into unconditional agreements for
$161.9 million of office sales on favourable terms, and going forward
we will continue to consider additional office dispositions. We had
also completed or entered into unconditional sale agreements for
$256.2 million of retail assets and $55.5 million of industrial assets.
This equates to $473.6 million of asset sales at prices in line with
International Financial Reporting Standards (“IFRS”) values reported
at December 31, 2023, including unconditional transactions, since
August 2, 2023. We continue to evaluate opportunities to sell
additional retail, office, and industrial assets, with a focus on the
industrial portfolio, in our effort to further deleverage and strengthen
the balance sheet, grow NAV per unit, and enhance liquidity.
As the strategic review process continues, our Board and management
team remain focused on the productivity of our core business - our
real estate assets and public securities investments. In addition to
the oversight and day-to-day management of our diverse portfolio
of assets, our primary objective continues to be reducing leverage
and enhancing liquidity. This can be challenging, but it is especially
important given the current economic environment.
Our portfolio continued to demonstrate operational strength over the
last year. The leasing momentum and traction that we experienced in
2022 continued throughout 2023. Our leasing team negotiated and
signed new leases and renewals for approximately 1.9 million square
feet from January to December. We ended the year with occupancy
(including commitments) of 90.9%. Our tenants continue to show
resilience despite the volatility businesses have faced over the last
Letter to Unitholders
several years. The promise of 2024 is already taking shape as our
leasing momentum from 2023 has again continued into the new year.
One of our most important key performance indicators (“KPIs”)
is NAV per unit. With respect to our 2023 financial performance,
at December 31, 2023, our NAV per unit was $13.96, compared to
$17.38 at December 31, 2022. The drop of over $3 per unit is due
to various factors, the most significant of which is fair value losses
on investment properties, a product of the upward movement in
capitalization rates noted earlier. We are disappointed with this result
and the fact that our units continue to trade at a significant discount
to NAV. Despite the current market skepticism towards diversified
REITs, our operating metrics affirm that the quality of our real estate
provides operating stability during an incredibly challenging time for
the real estate sector.
Despite the external headwinds we faced in 2023, we have also had
noteworthy successes in the year. In this letter, I will provide an
update on our key accomplishments and challenges in 2023, and
outline the road ahead.
YEAR IN REVIEW
Our fundamental near-term objectives in 2023 were to reduce
leverage and enhance liquidity to strengthen our balance sheet,
while concurrently focusing on bridging the value gap between
our intrinsic value and the current trading price of our units. The
pursuit of these objectives resulted in capital allocation decisions
that included selling assets, refinancing mortgages, obtaining new
mortgage financing, and monetizing public securities.
Below, I have summarized our notable investments and capital
allocation initiatives in 2023.
Disposition Strategy
In 2023, we sold 17 assets including nine industrial, five retail, and
three office, and a parcel of development land. The aggregate sale
price for these dispositions was $322.4 million, which translated to
proceeds of $222.0 million net of costs and related debt and the
issuance of a note receivable. The sale prices were, on balance, in
line with the IFRS fair values reported prior to the sales. The quality of
our real estate portfolio, and the ongoing demand for attractive and
well-located real estate, is reflected in the success of our disposition
strategy and the pricing we have been able to achieve.
Our disposition strategy is an important component of our liquidity
and balance sheet objectives. The liquidity generated from asset
sales provides us with flexibility to pursue capital allocation
initiatives that support our objectives and our commitment to
unitholders.
Equity Securities Investments
The redefined strategy announced in 2021 contemplated value
investing in equity securities investments of other publicly traded
companies or real estate investment trusts (“REITs”). This includes
investing in public securities where there is a 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. Identifying
companies or REITs that have exceptional properties in strong
markets that we can own by investing in these entities through
public shares or units is a cost-effective way for Artis to achieve an
ownership interest at an often-significant discount to what it would
ultimately cost to buy these properties directly.
2023 Annual Report | 3
SAMIR MANJI
President and
Chief Executive Officer
Letter to Unitholders
Dear Fellow Artis Unitholders:
This is my fourth annual letter to you, our valued unitholders, having
now concluded my third full year as President and CEO of Artis REIT.
Over the past three years, both Artis and the broader economic
landscape have undergone significant changes. In 2023, external
factors continued to have a significant impact on our business, in
particular our interest costs and our net asset value (“NAV”) per
unit. Broader market forces continue to put pressure on Artis’s
trading price, resulting in a substantial gap between our NAV per
unit and the market value of our units. This NAV-to-market-value
gap is not a challenge that we face alone; in fact, this is prevalent
across the Canadian real estate sector. Higher interest rates, and
the corresponding impact on borrowing costs, capitalization rates,
and the transaction landscape have created headwinds that the
2 | Artis Real Estate Investment Trust
entire sector must navigate. Despite these hurdles, the Artis Board
and management team continue to hold an unwavering resolve and
commitment to focus on the things that are within our control in order
to achieve our fundamental goal of maximizing value for unitholders.
Throughout 2023, there was persistent speculation about an
impending recession. The markets we are navigating through
today, shaped by the ongoing battle between current inflation
levels and the actions of the Federal Reserve and Bank of Canada,
continue to present challenges for investors. The promising news
of potential interest rate cuts later in the year bodes well for the real
estate industry, and we anticipate that this will stimulate increased
transactional activity and capital deployment among investors who
are currently pens down.
708 HEARTLAND TRAIL
Madison, Wisconsin
Letter to Unitholders
As a result of recent macroeconomic conditions and our near-term
focus on enhancing liquidity and strengthening our balance sheet, we
had to take a hard look at our investments from a capital allocation
perspective.
At December 31, 2022, our equity securities of Dream Office Real
Estate Investment Trust (“Dream Office”) and First Capital Real
Estate Investment Trust (“First Capital”) carried an aggregate fair
value of $316.8 million. In June 2023, we had an opportunity to
participate in Dream Office’s substantial issuer bid, pursuant to
which we sold approximately 2.2 million units for aggregate sale
proceeds of approximately $34 million. This was a capital allocation
decision that supported our liquidity objectives. Building on this,
during the third and fourth quarter we monetized additional equity
securities, and we ended 2023 with equity securities carrying an
aggregate fair value of $152.0 million.
In 2022, as part of the REIT’s value-investing strategy, Artis and a
consortium of partners closed on the acquisition and privatization
of Cominar Real Estate Investment Trust (“Cominar”). We saw this as
an opportunity to acquire quality, well-located real estate for much
less than its true value. In 2023, we completed the sale of several
Cominar assets with additional dispositions in the pipeline. We are
working on various means available to reduce our cost of capital in
Cominar, while simultaneously pursuing additional dispositions and
exploring opportunities to substantially enhance the density at a
number of our core retail sites in greater Montreal.
As conveyed earlier, value investing by definition requires patience
and time to realize the full potential of any investment. While we are
required to mark to market our investments on a quarterly basis, it is
time combined with our active engagement in these investments that
will ultimately produce the results we aim to achieve.
As our balance sheet and liquidity strengthen, we will be better
positioned to further engage with the board and management of our
various investee companies to collaborate on ways to unlock and
maximize value within each investee company.
Normal Course Issuer Bid
We continue to consider our normal course issuer bid (“NCIB”) to
be one of the most powerful tools available to enhance value for
our owners. During the last three NCIB terms, we have acquired the
maximum number of common units allowable. These units were
purchased at a significant discount to the NAV per unit of $13.96 at
December 31, 2023. Under the most recent NCIB term that expired
on December 18, 2023, we acquired 7,860,942 units at a weighted-
average price of $7.35.
Under previous NCIB terms, we implemented an automatic purchase
plan agreement (“APP”) with a broker to allow for the purchase
of its common and preferred units at times when Artis ordinarily
would not be active in the market due to quarterly or self-imposed
trading blackout periods. The APP is coterminous with the NCIB and,
therefore, the APP also expired on December 18, 2023. Effective
December 19, 2023, we renewed our NCIB and on March 5, 2024, we
announced that we have implemented an APP.
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. With the APP now in place,
we expect to continue to use our NCIB as a tool to enhance unitholder
value.
Development Projects
Development projects have been an important component of Artis’s
strategy as they reward our unitholders with additional income
streams as lease up occurs while also increasing the overall caliber
and value of our portfolio. Going into 2023, we had three development
projects underway: (i) Park Lucero East; (ii) Blaine 35 II; and (iii) 300
Main.
Park Lucero East is an industrial development project located in the
Greater Phoenix Area, Arizona, in which Artis has a 10% ownership
interest and a development management contract in place. This
project comprises three buildings totalling approximately 561,000
square feet. Each building was pre-leased to single tenants pursuant
to leases that commenced in 2023. We anticipate exiting this
investment in 2024 and plan to monetize both our equity and carried
interest in the project.
Blaine 35 II is the second and final phase of a three-building,
317,483 square foot industrial development in the Twin Cities Area,
Minnesota. Blaine II comprises two buildings totalling approximately
198,900 square feet of leasable area. The project is 100% leased.
Lastly, during the year we completed 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.
We welcomed our first residential tenants to the building on July 1,
2023, and leasing efforts for the remaining suites are underway. As
leasing progresses, we will see increasing contribution to our overall
financial results, both from a revenue and net operating income
perspective.
Real Estate Holdings
We sold a number of properties last year and, to meet our liquidity
and balance sheet objectives, expect to sell additional properties
in 2024. In the current market environment, we have intentionally
chosen to look at markets and assets that have liquidity and strong
values, which aligns with the principle of “buying low and selling
high”. The current environment is one where cash is king. Continuing
on the path of reducing leverage and enhancing liquidity will provide
us with flexibility to consider allocating capital to opportunities that
we believe provide us with above-average risk-adjusted returns. From
a capital allocation standpoint, we remain committed to maintaining
a meaningful allocation of our capital to direct ownership of income-
producing real estate assets.
Balance Sheet and Liquidity
Our primary near-term objectives remain clear: reduce leverage and
enhance liquidity to strengthen our balance sheet, while concurrently
focusing on bridging the value gap between our intrinsic value and
the current trading price of our units. In the face of broader market
challenges, we remain focused on what we can control as we
navigate the current environment.
We ended 2023 with liquidity of $164.3 million. During 2023, we
repaid a net balance of $53.0 million on our revolving credit facilities,
repaid the Series D senior unsecured debentures upon maturity with
a face value of $250.0 million, repaid maturing mortgages in the
amount of $175.1 million, and repaid mortgages in conjunction with
property dispositions in the amount of $75.5 million. Also during
the year, we drew on construction loans in the amount of $188.9
million and received new mortgage financing in the amount of $124.8
million. We ended the year with total debt of $1.9 billion compared to
$2.2 billion at December 31, 2022. This translated into total debt to
4 | Artis Real Estate Investment Trust
2023 Annual Report | 5
Letter to Unitholders
Letter to Unitholders
gross book value (“GBV”) of 50.9% at December 31, 2023, compared
to 48.5% at December 31, 2022. This uptick in our leverage ratio,
despite the lower total debt balance, was due primarily to the fair
value decrease in our income producing properties. With the firm
dispositions announced to date in 2024 and additional dispositions
in the pipeline, we anticipate a significant reduction in both total debt
and our total debt to GBV in 2024.
At December 31, 2023, NAV per unit was $13.96, compared to $17.38
at December 31, 2022. The change is due to various factors, the
most significant of which was fair value losses on investment
properties as noted above.
There are numerous levers available to strengthen our balance
sheet and enhance liquidity, including selling assets, refinancing
mortgages, obtaining new mortgage financing, and monetizing
public securities. Striking the right balance between these levers
will be critical to effectively managing our business defensively
through the external market challenges and ensuring a successful
path forward.
THE ROAD AHEAD
Three years have passed since we announced our redefined strategy.
Since then, our units have continued to trade at a significant discount
to NAV. We remain committed in our pursuit of narrowing this gap.
Global events, both economic and geopolitical, continue to change
and exert a widespread effect on our daily lives and the businesses
within which we operate. While there are many external economic
and market-based factors that are out of our control, we will continue
to focus on what is within our control - our business. At the same
time, it is important to not let quarter-to-quarter reporting dictate
and influence our decisions insofar as capital allocation and our
fundamental conviction around value investing. As I have conveyed
previously, Warren Buffett said “In the short run, the market is a voting
machine. In the long run, it’s a weighing machine.” For Artis, weight is
measured by NAV per unit. We will continue to do everything we can
to increase the weight of our company.
Throughout 2024, we will focus on the following:
Key Performance Indicators
Our KPIs are the REIT’s NAV per unit, adjusted funds from operations
(“AFFO”) per unit, AFFO payout ratio, debt-to-gross book value, and
distribution per unit. We plan to use the proceeds from dispositions
during the year to reduce debt and reallocate some of the capital
into initiatives that we believe will achieve the highest possible return
over time, ultimately contributing to our most important objective –
growing NAV per unit. Our improved liquidity position will allow us
to be opportunistic and pursue investments we believe are in line
with our strategy, which may include equity securities and real estate
acquisitions or developments.
Drive Organic Growth
Our organic growth strategy has three main objectives: 1) managing
our existing portfolio to achieve optimal efficiency; 2) improving our
portfolio’s income profile by extracting the maximum value from each
individual asset; and 3) constructing, as an owner or development
manager, state-of-the-art new generation real estate in strategic
locations that are expected to generate strong development yields.
Leasing activity during 2023 remained strong throughout the year.
During the 12-month period, approximately 1.9 million square feet of
new leases and renewals were negotiated and signed. This included
many new leases for space at development projects, which speaks
to the continued demand for new generation real estate that is well
positioned and designed with features that appeal to the target
market.
There were 1,163,799 square feet of new leases and 1,024,276
square feet of renewals that began in 2023. The renewals were
negotiated at a weighted-average rental increase of 4.8% compared
to expiring rents. We were pleased to report a strong 7.6% increase in
same property net operating income year over year. Same property
net operating income growth is an important metric, and one that we
will continue to monitor closely in the quarters ahead.
Development projects similarly present a compelling opportunity
to generate income and create value for our owners. We completed
three projects in 2023, including two industrial properties that
are fully leased and our mixed-use development at 300 Main that
includes 18,481 square feet of retail space and 395 residential rental
units.
Sustainability initiatives are another important element of our
organic growth strategy. These initiatives result in cost benefits
and efficiencies and
implementation of environmental best
practices often translates directly to organic growth. Analysis of
key environmental risks (including both physical and transitional
climate risks) allows us to proactively allocate capital, both with
respect to our existing portfolio and our new development projects,
to ensure these investments are best positioned to produce long-
term sustainable growth for our unitholders. Tenant engagement
is an important component. Strong rapport is important in any
successful business relationship and contributes to promoting
tenant retention. In 2023, we conducted our second annual tenant
satisfaction survey. These surveys are a valuable tool to help us to
understand what we are doing well and where there is opportunity for
improvement. Our ESG Community website has provided an effective
means of engaging with our tenants on ESG matters. This website
is exclusively for tenants and was created to foster our ongoing
commitment to the environment, corporate social responsibility,
and sustainability. We are fulfilling this commitment by providing a
platform for collaboration on ESG matters and developing a long-term
ESG strategy for employees, tenants, investors, and stakeholders.
Through new and innovative avenues, we can engage with our
tenants and work together as partners in pursuit of environmental
protection and sustainability. Collectively we can make an impactful
and positive change.
NCIB
On December 15, 2023, we renewed our NCIB. Under the terms of
this bid, we can acquire up to 7,021,296 units prior to its expiry on
December 18, 2024. We view our NCIB as a very valuable tool to
enhance unitholder value during times when our units are trading at
a discount to NAV. We expect to utilize our NCIB over the course of
2024 through our APP mentioned above.
Environmental, Social and Governance
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 performance. This extends beyond sustainability
initiatives at the property level to our overall Environmental, Social,
and Governance (“ESG”) initiatives across the organization. As part
As I said in my letter last year, when we announced a new vision and
strategy for Artis three 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 couple of years very difficult, but history has demonstrated
that there will always be ebbs and flows, periods of time when the
economy provides tailwinds for our business and periods when it
creates headwinds. While we did not identify a buyer for the REIT
through our strategic review process, we will continue to focus on
the big picture. This means focusing on the value of our units, not the
price of our units. We are confident that with the continued 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 in the long term.
Rest assured, we will do our best to stay true to the commitment
we presented to our owners in March 2021. All of this will require
patience, a fundamental criteria of value investing. We know this
patience is not easy to maintain with the decline we have seen in
our unit price, but I believe we will see the benefit on the other side
as interest rates decrease and real estate values begin to increase.
Thank you for trusting us with your capital. While we still have a lot
of work ahead of us, we look forward to the rest of 2024 with even
greater determination and resolve to work hard for our unitholders
and to deliver stronger results.
In closing, I invite all our stakeholders to join us in person at our
next annual general meeting scheduled for 2:00 pm ET on May 23,
2024, at the Hilton Toronto hotel in downtown Toronto, Ontario. I look
forward to seeing you there.
Samir A. Manji
President & Chief Executive Officer
of our strategy, we committed to making ESG a focal point and to
establishing a company-wide ESG-minded culture at Artis – a
commitment we have taken very seriously.
Over the last three years we have made significant progress with
our efforts to adopt ESG best practices. Through our ongoing
sustainability initiatives, we are confident in our ability to 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. We look
forward to publishing our 2023 ESG Report in the coming months,
which will provide an update on this important part of our strategy.
FINAL THOUGHTS AND OUR ANNUAL GENERAL MEETING
2023 was a challenging year in many respects, including the rising
interest rate environment that we witnessed and, with persistently
high inflation data, the evolution of the “higher for longer” stance
taken by the Bank of Canada and the Federal Reserve. The high level
of floating rate debt that Artis had going into 2023 was a concern as
we navigated the impact and effect of rising interest rates. We began
last year with a commitment to reduce debt through monetizing
assets, despite the expectation some had at that time that rates
would come down as 2023 progressed. While the latter did not
materialize, our plan to reduce debt served us well insofar as our
ability to navigate the year and set the stage for 2024. A number of
sale transactions we secured in 2023 will close in the first half of
2024 and this will have a positive impact on our goal of reducing
leverage and enhancing liquidity. If we continue the momentum we
have with our disposition plan, we will further strengthen our balance
sheet and liquidity position. This in turn will give us a greater level of
flexibility and potentially put us in a position where we can go from
defence to offence.
As noted previously, our recent strategic review update confirmed
that the current market environment is not conducive to attracting
buyers for the entire REIT. The Board and management team are
well aware that Artis’s unit price continues to trade at a significant
discount to its NAV per unit. As we have stated in the past, this is
not acceptable. We remain committed to using all near-term levers
available to us to address this issue. At the same time, we will
continue to evaluate opportunities available to us from a capital
allocation standpoint to grow NAV. Our investments in Dream
Office and First Capital represent capital allocation decisions that
followed monetizing office and retail assets at fair market value
and allocating a portion of the sale proceeds to companies that we
believed were materially undervalued. Warren Buffett said, “It’s far
better to buy a wonderful company at a fair price than a fair company
at a wonderful price.” In selling our own assets at full value and
buying these investments at what we believed to be a discount to fair
value, we allocated capital in a manner that we believe will benefit
Artis’s owners in the long term. Recently, Blackstone announced
it would acquire Tricon Residential REIT. I believe this is just the
beginning of what could be a busy year for M&A activity in the public
real estate space. Blackstone is just one of many private equity firms
that have raised substantial capital that has yet to be put to work. I
believe that both Dream Office and First Capital represent wonderful
companies that are materially undervalued and could be potential
targets for M&A activity. Even at what Warren Buffett refers to as
a “fair price,” these companies would sell for meaningful premiums
to their current trading price. While there is no guarantee this will
happen, it is certainly a possibility as we finally start to see interest
rate cuts on both sides of the border this year and the substantial dry
powder currently on the sidelines go to work.
6 | Artis Real Estate Investment Trust
2023 Annual Report | 7
DOWNTOWN SKYLINE
Winnipeg, Manitoba
300 MAIN
360 MAIN
BELL MTS I
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
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, 2023, the
REIT’s portfolio comprised 119 commercial properties totalling
approximately 13.7 million square feet of gross leasable area.
I19
Total Number
I3.7
Million Sq.Ft.
Properties
Gross
Leasable area
BELL MTS II
Canada
44.0%
Canada
45.2%
NET
OPERATING
INCOME BY
COUNTRY
FOR THE THREE MONTHS
ENDED DECEMBER 31, 2023
U.S.
56.0%
GROSS
LEASABLE
AREA BY
COUNTRY
AS AT DECEMBER 31, 2023
U.S.
54.8%
key financial metrics
As at or for the year ended December 31, 2023
$I3.96
NAV PER UNIT
$0.63
AFFO PER UNIT
$336M
REVENUE
$1.08
FFO PER UNIT
$3.7B
TOTAL ASSETS
55.6%
FFO PAYOUT RATIO
50.9%
TOTAL DEBT TO GBV
95.2%
AFFO PAYOUT RATIO
8 | Artis Real Estate Investment Trust
2023 Annual Report | 9
MAX AT KIERLAND
Scottsdale, Arizona
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 value investing.
BUSINESS STRATEGY
In March 2021, Artis unveiled a redefined strategy to achieve its
vision and to create an asset management and investment platform,
focused on value investing in real estate.
The goal of the strategy is to generate meaningful long-term growth
in NAV per unit by strengthening the balance sheet, driving organic
growth and scaling-up through value investing. As part of this
strategy, Artis will concentrate its ownership in the highest and best
return opportunities in an effort to maximize long-term value for
unitholders.
“The goal of the
strategy is to generate
meaningful long-term
growth in NAV per
unit by strengthening
the balance sheet,
driving organic growth
and scaling-up through
value investing.”
10 | Artis Real Estate Investment Trust
2023 Annual Report | 11
Portfolio and Operational Performance
Portfolio and Operational Performance
Portfolio and Operational Performance
Portfolio map
On December 31, 2023, Artis’s portfolio comprised 119 properties
totalling 13.7 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, 2023, Canadian assets account for 45.2%
of the portfolio by gross leasable area, while 54.8% of the portfolio
by gross leasable area is located in the U.S. By asset class, Artis’s
industrial portfolio accounts for 41.6% of the REIT’s gross leasable
area, while office assets represent 45.2% and retail assets represent
13.2%. The REIT also has joint ownership interest in 11 investment
properties, 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 2023, Artis’s portfolio continued to maintain a healthy occupancy
level above 90% (including commitments) throughout the year. During
the year, approximately 2.2 million square feet of lease transactions
(including new leases and renewals) commenced. The weighted-
average increase in rental rates achieved on these renewals was
4.8%. Looking ahead to 2024, a manageable 11.3% of Artis’s gross
leasable area expires, 31.7% of which was renewed or committed
to new leases at the end of 2023. Artis’s property managers work
closely with tenants, fostering long lasting relationships while
ensuring their space is aligned with their business strategy and
overall needs in order to promote tenant retention.
Artis has 978 tenant leases in its portfolio with a weighted-average
term to maturity of 5.1 years. The properties have a diverse tenant
base, with the top 10 tenants representing 19.2% 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 2023.
Development projects continue to present a compelling opportunity
to create value for unitholders by enhancing the portfolio with new
generation real estate at building costs that are well below the REIT’s
estimated fair value upon completion. In 2023, Artis completed the
following development projects:
• Park Lucero East, an industrial development project in the Greater
Phoenix Area, Arizona, which comprises 561,000 square feet
and is 100.0% leased. Artis has a 10% ownership interest in Park
Lucero East as well as a development management contract.
• Blaine 35, an industrial development project in the Twin Cities
Area, Minnesota. Blaine 35 I, comprises one building which was
completed in 2022 and Blaine 35 II, comprises two single-tenant
industrial buildings. The first building totals 98,900 square feet
was 100.0% committed upon completion in 2022. The second
building totals 100,000 square feet and was 100.0% occupied
upon completion in 2023.
Portfolio
By Gross Leasable Area as at December 31, 2023
British Columbia
2.3%
Saskatchewan
3.6%
Colorado
1.2%
Ontario
0.7%
Alberta
12.1%
Arizona
12.8%
by state /
province
Retail
13.2%
Manitoba
26.5%
Minnesota
15.8%
Texas
12.2%
Wisconsin
12.8%
Industrial
41.6%
by ASSET
CLASS
Office
45.2%
BRITISH
COLUMBIA
3 properties
0.3 million sq.ft.
ALBERTA
26 properties
1.6 million sq.ft.
SASK ATCHEWAN
5 properties
0.5 million sq.ft.
MANITOBA
41 properties
3.6 million sq.ft.
ONTARIO
1 property
0.1 million sq.ft.
ARIZONA
11 properties
1.8 million sq.ft.
COLORADO
1 properties
0.2 million sq.ft.
MINNESOTA
10 properties
2.1 million sq.ft.
TEXAS
5 properties
1.7 million sq.ft.
WISCONSIN
16 properties
1.8 million sq.ft.
12 | Artis Real Estate Investment Trust
2023 Annual Report | 13
708 HEARTLAND TRAIL
BOULDER LAKES BUSINESS PARK
Madison, Wisonsin
Twin Cities Area, Minnesota
Portfolio and Operational Performance
• 300 Main is a 580,000 square foot residential and commercial
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 is 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. Residential tenants began moving into the building
on July 1, 2023, and leasing of the remaining apartment units is
currently underway.
As part of Artis’s strategy – to build a best-in-class asset
management and investment platform focused on growing net
asset value per unit for investors through value investing, 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 non-core 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 redefined strategy, Artis sold 17 properties
totalling 1,967,590 square feet of gross leasable area and a parcel
of land for aggregate sale prices of $141.9 million and US$147.2
million in 2023. These dispositions included the sale of three office
properties, five retail properties and nine industrial properties.
lease expiries by year
By Gross Leasable Area
60%
50%
40%
30%
20%
10%
Top 10 Tenants
Tenant
% of Total
Gross Revenue (1)
Weighted-Average
Lease Term in Years
GOVERNMENT
(1) In Canadian and US dollars
4.1%
2.4%
2.1%
1.7%
1.7%
1.5%
1.5%
1.4%
1.4%
1.4%
7.1
10.8
3.0
12.6
8.9
3.0
5.9
7.9
6.0
5.0
Industrial
Office
Retail
Total Portfolio
2024
2025
2026
2027
2028+
14 | Artis Real Estate Investment Trust
2023 Annual Report | 15
Developments
Developments
Developments
BLAINE 35
Twin Cities Area, Minnesota
Blaine 35 is a two-phase industrial development project located in
the Twin Cities Area, Minnesota, comprising three buildings that total
317,483 square feet of leasable area.
Throughout the planning stages of Blaine 35, Artis worked closely
with the city and local community representatives to collaborate and
ensure sustainability was a key consideration in the design plans for
the site. The development project incorporates distinct architectural
design, lush landscaping and sustainable wetlands.
The site also features improved infiltration and evapotranspiration
and a campus environment that is favourable for pollinators such
as honeybees and butterflies. The infrastructure is designed to
support the installation of electric vehicle charging stations and
the site design allows for the extension of the Regional Bicycle
Transportation Network along 35W Service Drive.
Construction of the second and final phase of Blaine 35 was complete
in 2023. The entire development is 100% leased.
to
CBRE’s
quarterly
According
Minneapolis Industrial Market Report,
industrial market
the Twin Cities
showcased robust growth
in 2023,
with 5.15 million square feet of space
absorbed throughout the year. This
performance indicates a strong market,
further supported by a 10% increase
in leasing activity compared to the
T
E
K
R
A
previous year.M
16 | Artis Real Estate Investment Trust
2023 Annual Report | 17
Developments
Developments
300 MAIN
Winnipeg, Manitoba
Transforming the heart of Winnipeg’s business district, 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 and is Manitoba’s tallest residential
apartment tower.
Residents started moving into the first twenty floors of the building
in the third quarter of 2023. The 580,000 square foot development
is connected to Artis’s multi-tenant retail space at 330 Main and the
Shops of Winnipeg Square. It is also adjacent to Artis’s 360 Main
office tower. Additionally, the commercial space within 300 Main
welcomed Earls Kitchen & Bar in 2022.
300 Main is pet-friendly, not only does the building boast pet washing
stations, its second-floor outdoor area includes a dog run and pet
playground, the first of its kind in Winnipeg. Additionally, this second-
floor area includes spacious outdoor seating, private dining areas,
co-working space, fireplaces, multiple BBQs and a pizza oven.
Luxury urban living at 300 Main is elevated to another level with
the exclusive tenant lounge located on the 40th floor, providing
breathtaking panoramic views of the city and includes private
reading nooks, a fully equipped kitchen and dining room, two outdoor
patios with fireplaces, a group theatre area and a games room with
arcades, billiards and a poker table.
According to the Canada Mortgage and
Housing Corporation’s (CMHC) rental
market report, the 2023 vacancy rate in
Winnipeg’s purpose-built rental market
was 1.8% -- a low not seen since 2012.
Despite low vacancy rates, average two-
bedroom rent grew by 4.4%. Within the
property’s downtown neighbourhood,
300 Main provides access
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 Shops of Winnipeg
Square retail concourse and Winnipeg
Square Parkade, providing tenants with
access to heated underground parking.
to
T
E
K
R
A
M
18 | Artis Real Estate Investment Trust
2023 Annual Report | 19
Developments
Developments
PARK LUCERO EAST
Greater Phoenix Area, Arizona
Artis has a 10% ownership interest in, and a development management
contract for Park Lucero East, an industrial development project in
the Greater Phoenix Area, Arizona. 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.
The site is located along the South Loop 202 Freeway with 202
Freeway and Germann Road frontage. This area has proven to
generate strong demand and attract high-quality tenants, in part
due to the number of quality restaurants within walking distance.
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.
According to CBRE’s quarterly Phoenix
Industrial Market Report, the Greater
Phoenix
industrial market exhibited
solid performance in Q4 of 2023, with
a healthy net absorption of 2.7 million
square feet. The market boasts a
competitive asking lease rate of $1.08
per square foot. Over the year, the total
absorption reached 12.9 million square
feet, signaling a resilient and dynamic
market underpinned by vigorous leasing
in
activities and a steady
T
E
K
R
A
project starts.M
increase
20 | Artis Real Estate Investment Trust
2023 Annual Report | 21
Balance Sheet and Financial Performance
Balance Sheet and Financial Performance
selected financial information
Balance Sheet and Financial Performance
000’S, EXCEPT PER UNIT AMOUNTS (YEAR ENDED DEC 31)
Revenue
Net Operating Income
Net (Loss) Income
Total Comprehensive (Loss) Income
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- Diluted (2)
FFO Payout Ratio (2)
AFFO (2)
AFFO per Unit - Diluted (2)
AFFO Payout Ratio (2)
Same Property NOI Growth (Decline) (2)
Adjusted EBITDA Interest Coverage Ratio (2)
2023
$ 335,837
184,017
(332,068)
(364,399)
(3.10)
(3.10)
$ 0.60
-
1.48
1.67
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
$ 120,539
$ 163,189
$ 174,343
1.08
55.6 %
$ 69,998
0.63
95.2%
7.6%
2.08
1.38
43.5%
1.34
44.0%
$ 110,950
$ 124,476
0.94
63.8%
1.8%
2.98
0.96
61.5%
(4.1)%
3.80
(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 of this annual report.
000’S, EXCEPT PER UNIT AMOUNTS (AS AT DEC 31)
2023
2022
2021
Total Assets
$ 3,735,030
$ 4,553,913
$ 4,576,024
Total Non-Current Financial Liabilities
1,047,231
974,063
1,166,123
NAV per Unit (1)
Secured Mortgages and Loans to GBV (1)
Total Debt to GBV (1)
Unencumbered Assets (1)
13.96
24.3%
50.9%
17.38
18.9%
48.5%
17.37
23.7%
42.9%
$ 1,567,001
$ 2,034,409
$ 1,902,748
(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.
A critical component of Artis’s strategy is the strengthening of the
REIT’s balance sheet to provide liquidity and flexibility to navigate
the current environment and to capitalize on opportunities that
align with Artis’s overall strategy. In line with the REIT’s liquidity
objectives, in 2023, Artis sold 17 properties totalling 1,967,590
square feet of gross leasable area and a parcel of land for aggregate
sale prices of $141.9 million and US$147.2 million.
The REIT’s NCIB program has been active since the announcement
of the redefined strategy. Under the NCIB that expired on December
16, 2021, Artis purchased 10,160,396 units at a weighted average
price of $11.26, under the NCIB that expired on December 16, 2022,
Artis purchased 8,778,176 common units at a weighted-average
price of $12.39, and under the NCIB that expired on December 18,
2023, Artis purchased 7,860,942 units at a weighted-average price of
$7.35, representing the maximum number of common units allowed
under each of the terms. These units were purchased at a significant
discount to NAV per unit of $13.96 at December 31, 2023.
At December 31, 2023 Artis’s liquidity included $28.9 million of
cash on hand and $135.3 million available to be drawn on the REIT’s
unsecured revolving credit facilities. At December 31, 2023, the REIT
had 85 unencumbered properties and two unencumbered parcels of
development land, representing a fair value of $1.6 billion.
During 2023, Artis repaid a net balance of $53.0 million on our
revolving credit facilities, repaid the Series D senior unsecured
debentures upon maturity with a face value of $250.0 million, repaid
maturing mortgages in the amount of $175.1 million and repaid
mortgages related to property dispositions in the amount of $75.5
million Also during the year, Artis drew on construction loans in the
amount of $188.9 million and received new mortgage financing in the
amount of $124.8 million. Total debt to GBV was 50.9% at December
31, 2023, compared to 48.5% at December 31, 2022. Artis’s Adjusted
EBITDA interest coverage ratio was 2.08 for 2023, compared to 2.98
for 2022.
Artis’s primary objective is to generate meaningful and long-term
growth in NAV per unit. In accordance with this objective, NAV is
a critical area of focus and an important key performance indicator
for Artis. At December 31, 2023, Artis’s NAV per unit was $13.96,
compared to $17.38 at December 31, 2022. The decrease is due to
various factors, the most significant of which is fair value losses
on investment properties, a product of the upward movement in
capitalization rates.
industry, other common key performance
In the real estate
indicators include funds from operations (“FFO”) and adjusted funds
from operations (“AFFO”). FFO in 2023 was primarily impacted by
decreased net operating income as a result of dispositions completed
in 2022 and 2023 and increased interest expense, partially offset by
an increase to other income due to the preferred investment as part
of the Cominar Transaction. 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
2023, FFO was $120.5 million, compared to $163.2 million in 2022.
On a per unit basis, FFO was $1.08, compared to $1.38 year over
year. AFFO was $70.0 million in 2023, compared to $111.0 million in
2022. This translates to a per unit AFFO of $0.63 in 2023, compared
to $0.94 in 2022. The REIT reported FFO and AFFO payout ratios of
55.0% and 93.8%, respectively, for 2023. These metrics are adjusted
for the impact of the realized gain (loss) on equity securities. Please
refer to the FFO and AFFO section of the 2023 Annual MD&A for
further information.
Artis continues to maintain its investment grade credit rating from
Morningstar 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, 2023, Morningstar DBRS assigned
a rating of BBB (low) to the REIT’s senior unsecured debentures and
Pfd-3 (low) to Artis’s Preferred Units, both with stable trends. On
February 2, 2024, Morningstar DBRS changed the trend to negative
from stable and confirmed Artis’s ratings at BBB (low) and Pfd-3
(low).
Unitholders’
Equity
47.4%
TOTAL
CAPITALIZATION
AS AT DECEMBER 31, 2023
Mortgages
25.2%
Credit Facilities
21.9%
Senior
Unsecured
Debentures
5.5%
Office
50.7%
NET OPERATING
INCOME
FOR THE THREE MONTHS
ENDED DECEMBER 31, 2023
Retail
19.3%
Industrial
30.0%
22 | Artis Real Estate Investment Trust
2023 Annual Report | 23
2022 Annual Report
CEDAR PORT
Greater Houston Area, Texas
Capital Allocation
Capital Allocation
Effective capital allocation is a fundamental component of Artis’s
vision and strategy. As part of the announcement of the redefined
strategy in 2021, 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. Artis’s near-term priority,
given the current macroeconomic environment, is to reduce leverage
and enhance liquidity to strengthen the REIT’s balance sheet. There
are a number of levers available to Artis to strengthen its balance
sheet and enhance liquidity, including selling assets, refinancing
mortgages, obtaining new mortgage financing and monetizing public
securities.
During the year ended December 31, 2023, Artis sold 17 properties
and a parcel of land for aggregate sale prices of $141.9 million and
US$147.2 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 (as described in the Portfolio and Operational Performance
section) and manage it’s near term debt obligations.
Since the announcement of the redefined strategy 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, under the NCIB that expired on December
16, 2022, Artis purchased 8,778,176 common units at a weighted-
average price of $12.39, and under the NCIB that expired on December
18, 2023, Artis purchased 7,860,942 units at a weighted-average
price of $7.35, representing the maximum number of common units
allowed under each of the terms. These units were purchased at a
significant discount to NAV per unit of $13.96 at December 31, 2023.
dispositions
Artis continues to view the NCIB as a powerful tool for enhancing
value for unitholders and may continue to use it in circumstances
where the REIT’s units trade at a significant discount to NAV.
In 2023, Artis elected to reset the rate on the Series I and Series
E preferred units and repaid the $250.0 million Series D senior
unsecured debenture upon maturity on September 18, 2023.
With respect to investment public real estate entities, at the end of
2022, Artis held equity securities with an aggregate fair value of
$316.8 million. This includes equity securities of Dream Office REIT
and First Capital REIT. Artis’s equity securities investments are one
of the capital allocation levers available to the REIT to pursue Artis’s
liquidity and balance sheet objectives. During 2023, Artis monetized
a portion of its equity securities and, most notably, participated in
Dream Office REIT’s substantial issuer bid, pursuant to which Artis
sold approximately 2.2 million units for aggregate sale proceeds
of nearly $34 million. This was a capital allocation decision that
supported the REIT’s liquidity objectives. Building on this, during the
second half of the year Artis monetized additional equity securities,
ending 2023 with equity securities investments with an aggregate
fair value of $152.0 million. Artis will continue to evaluate its public
securities from a capital allocation standpoint in relation to market
conditions and the REIT’s liquidity objectives going forward.
DISPOSITION DATE
ASSET CLASS
PROPERTY NAME
LOCATION
March 14, 2023
April 19, 2023
May 15, 2023
May 29, 2023
May 30, 2023
June 7, 2023
June 9, 2023
June 16, 2023
Office
Retail
Retail
Retail
Retail
Industrial
Land
Industrial
North 48 Commercial Centre
Saskatoon, SK
Liberton Square
Greater Edmonton Area, AB
Gateway Power Centre
Grande Prairie, AB
Visions Building
Namao South
Calgary, AB
Edmonton, AB
Clearwater Creek Distribution Center
Twin Cities Area, MN
1630 Aspen
Eagle Creek
Madison, WI
Twin Cities Area, MN
Winnipeg, MB
June 16, 2023
Retail
St. Vital Square
June 27, 2023
Industrial
Minnesota Industrial Portfolio II (1)
Twin Cities Area, MN
September 29, 2023
November 17, 2023
Office
Office
EMC Building
161 Inverness
Edmonton, AB
Greater Denver Area, CO
December 4, 2023
Industrial
Memorial Crossing
Calgary, AB
24 | Artis Real Estate Investment Trust
(1) Minnesota Industrial Portfolio II comprises six industrial properties.
2023 Annual Report | 25
300 MAIN
Winnipeg, Manitoba
Environmental, Social and Governance
Environmental, Social and Governance
At Artis, ensuring that the REIT conducts its business in a sustainable
manner is fundamental to the success of the company. Artis continues
to implement positive changes that reinforce environmental, social
and governance (“ESG”) as a focal point in day-to-day operations
while establishing a company-wide ESG-minded culture.
The following outlines Artis’s commitment to ESG best practices and
the progress the REIT has made in each of these areas.
ENVIRONMENTAL
Artis is committed to sustainable business practices that protect,
preserve and benefit the community and the environment. A
commitment to environmental responsibility is embedded in our
operations, activities, and organizational culture and is reinforced
and demonstrated through the implementation and management
of internal policies and goals that support this objective. Artis is
committed to minimizing its impact on the environment by using
energy efficient and environmentally friendly systems, fixtures
and products in its buildings as well as reducing excessive waste
generation and reusing materials where possible. 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 commitment to environmental best practices is summarized
below:
• 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. Artis recognizes
that effective employee engagement and rewarding productivity
inspires team members to put their best foot forward, ultimately
attracting and retaining talented people, whose determination,
innovation, and ability to build strong relationships with tenants and
investment partners is fundamental to Artis’s growth.
This goes far beyond day-to-day operations and extends to company
policies on important topics such as diversity, equity and inclusion
and belonging, community involvement, volunteerism and charitable
giving, sustainability and environmental protection and awareness,
professional development and work life balance, among other things.
With a total of 169 employees, (of which 136 are based in Canada and
33 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 commitment to robust corporate governance practices is
critical to the company’s reputation, workplace culture, operations,
and strong results. Artis integrates these practices into its broader
risk management approach, and comprehensive policies, aiming
to exceed its stakeholder expectations. 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, suppliers and other
partners and stakeholders.
to continuously strengthen
26 | Artis Real Estate Investment Trust
2023 Annual Report | 27
220 PORTAGE & 360 MAIN
Winnipeg, Manitoba
Environmental, Social and Governance
Strong and effective governance practices are ingrained in 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, 2023, the Board exceeded its diversity targets, with
57% female representation and 29% Black, Indigenous and People of
Colour representation.
Artis’s commitment to governance best practices is summarized
below:
• Become a leader: Strive to establish Artis as a leader in governance
best practices;
• 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.
The REIT’s commitment to ESG best practices continues to evolve
and expand since the announcement of the redefined strategy. In
addition to the significant transformation of Artis’s ESG program
throughout 2022, some accomplishments in 2023 include the
following:
• ESG Committee, comprised of senior
level employees
across all offices continued to meet monthly to discuss,
practices;
implement
added Yardi Pulse
tools
to complement
and provide sustainability-focused, property-level reporting
functionality;
best
reporting
collaborate
ESG
and
its
on
• conducted a portfolio-wide, property-by-property climate risk
assessment utilizing Moody’s Climate on Demand tool;
•
incorporated reporting principles of the Global Reporting Initiative
(“GRI”) and the United Nations Sustainable Development Goals;
• submitted to GRESB for the second consecutive year;
• published a Tenant Sustainability Guide;
• enhanced ESG disclosure on company website;
• conducted the second annual tenant engagement and satisfaction
survey;
• conducted the second annual employee engagement and
diversity, equity and inclusion survey;
• provided leadership training to all employees;
• created an internal Diversity, Equity, Inclusion and Belonging
committee to oversee the REIT’s DEIB initiatives; and
• 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.
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 2023 ESG Report
in the coming months, providing a comprehensive update on the
progress that has been made over the last year.
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, 2023, the REIT had four properties with a Leadership
in Energy and Environmental Design (“LEED”) certification, four
properties with a Building Owners and Managers Association
(“BOMA”) Building Environmental Standards (“BEST”) certification
and seven 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.
28 | Artis Real Estate Investment Trust
2023 Annual Report | 29
Outlook
Outlook
On February 29, 2024, Artis provided an update on the strategic
review process that was initiated on August 2, 2023. Since the
announcement of the strategic review, the Special Committee and the
Board have been working with the REIT’s financial advisors to explore
options available to unlock and maximize value for unitholders,
including the potential sale of the REIT. In the current market, Artis
and its advisors do not believe that there is a buyer prepared to
acquire the REIT at a reasonable value relative to management’s
latest published NAV per unit of $13.96. There continues to be a
healthy appetite in the private transaction environment for quality
retail and industrial assets. There is also buyer interest for certain
office assets, but office buyers in general are expecting bargain
prices or vendor financing, neither of which are compatible with
Artis’s desire to generate financial liquidity from dispositions.
The work undertaken by the Board and Special Committee has
enabled Artis to properly assess the current environment and options
available to the REIT in an effort to create and maximize value for
unitholders. Artis continues to see strong value in the industrial,
office, and retail asset classes. As part of the strategic review
process, the REIT is continuing to evaluate opportunities relating
to the sale of additional retail, office, and industrial assets, with a
focus on the industrial portfolio, in its efforts to further deleverage
and strengthen the balance sheet, grow NAV per unit, and enhance
liquidity. Higher interest rates and other macro economic factors
continue to impact the real estate sector; however, Artis continues
to focus on the REIT’s disposition strategy and has confidence that
it will be able to successfully execute this strategy in the coming
year. In the meantime, management continues to closely monitor
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 may
also present 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.
Going forward, Artis will continue to focus on increasing liquidity
and improving its balance sheet while considering strategic capital
allocation initiatives in relation to the macro economic environment
as it relates to opportunities to deploy 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. The Board remains committed
to pursuing strategic alternatives that may be available to the REIT to
unlock and maximize value for unitholders, including pursuing near-
term opportunities available to enhance and grow NAV per unit.
corporate information
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
Toronto Stock Exchange Listings:
Trust Units
$0.05 per trust unit per month
AX.UN
Preferred Unit Series E AX.PR.E $0.449875 per unit per quarter
$0.4370625 per unit per quarter
Preferred Unit Series I
AX.PR.I
Annual General Meeting:
May 23, 2024, at 2:00 pm ET
Hilton Toronto, 145 Richmond Street West, Toronto, Ontario
executive management
Samir Manji
Jaclyn Koenig
Kim Riley
President and
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Board of Trustees
Board of Trustees
Heather-Anne Irwin
Samir Manji
Ben Rodney
Mike Shaikh
Member of the Governance,
Nominating and
Compensation Committee
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
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
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.
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, 2023, there were seven.
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 standing committees which, at December 31,
2023, 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 members of the standing committees
are independent of management. In addition, Artis has announced
that a Special Committee was established to consider and evaluate
strategic alternatives available to Artis. The Special Committee
consists of Ben Rodney (Chair), Lis Wigmore and Samir Manji.
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/.
30 | Artis Real Estate Investment Trust
2023 Annual Report | 31
management’s discussion & analysis
2023 annual
Years ended December 31, 2023 and 2022
(in thousands of Canadian dollars, except unit and per unit amounts)
TSX: AX.UN AX.PR.E AX.PR.I
OTCQX: ARESF
32 | Artis Real Estate Investment Trust
2023 Annual Report | 33
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 years ended December 31, 2023 and 2022, 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 29, 2024. Additional information, including the REIT's most recent Annual Information Form, has been filed with applicable Canadian securities
regulatory authorities and is available on Artis's website at www.artisreit.com or SEDAR+ at www.sedarplus.ca.
FORWARD-LOOKING DISCLAIMER
This MD&A contains certain statements which are "forward-looking statements" within the meaning of applicable securities laws. 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. Forward-looking statements reflect management’s expectations regarding 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 or variations
of such words and phrases are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements.
Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. Artis cannot assure
investors that the 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 MD&A 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 strategy, real property ownership, geographic concentration, current economic
conditions, strategic initiatives, pandemics and other public health events, 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
systems, cyber security, environmental matters and climate change, land and air rights leases, public market, market price of common units, changes in legislation
and investment eligibility, availability of cash flow, fluctuations in cash distributions, nature of units and legal rights attaching to units, preferred units and
debentures, dilution, unitholder liability, failure to obtain additional financing, potential conflicts of interest, developments, and trustees.
In particular, any proposed acquisitions and dispositions described herein or in documents incorporated by reference herein are, in certain cases, subject to
conditions that may not be satisfied and there can be no assurance that such acquisitions and dispositions will be completed. In addition, with respect to the
strategic review process undertaken by the Board and Special Committee (refer to Business Strategy section of this MD&A), there can be no assurance that such
process will result in the REIT pursuing any transaction or that any alternative transaction will be available to the REIT.
The Tax Act contains the SIFT Rules, which are applicable to SIFTs and investors in SIFTs, but do not apply to trusts that satisfy the REIT Exception. As at the date
of this MD&A, Artis satisfies the REIT Exception and intends to continue to satisfy the REIT Exception so that the SIFT Rules will not apply to Artis. Should this not
occur, certain statements contained in this MD&A relating to the SIFT Rules and the REIT Exception relating to Artis and its holders of common units would no
longer be applicable.
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, 2023 as well as Artis's other public filings, available on
SEDAR+ at www.sedarplus.ca.
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
FFO Adjusted for Impact of Realized Gain (Loss) on Equity Securities, AFFO Adjusted for Impact
of Realized Gain (Loss) on Equity Securities, FFO Adjusted for Impact of Realized Gain (Loss)
on Equity Securities per Unit, AFFO Adjusted for Impact of Realized Gain (Loss) on Equity
Securities per Unit
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
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 29, 2024, there were 107,953,152 common units, 7,918,049 preferred units, 463,590 restricted units and 358,818 deferred units of Artis outstanding
(refer to the Outstanding Unit Data section of this MD&A for further details).
VISION
Artis's vision is to become a best-in-class real estate asset management and investment platform focused on value investing.
NOTICE WITH RESPECT TO NON-GAAP & SUPPLEMENTARY FINANCIAL MEASURES DISCLOSURE
BUSINESS STRATEGY
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, FFO Adjusted for Impact of Realized Gain (Loss) on Equity Securities,
AFFO Adjusted for Impact of Realized Gain (Loss) on Equity Securities, FFO Adjusted for Impact of Realized Gain (Loss) on Equity Securities per Unit, AFFO
Adjusted for Impact of Realized Gain (Loss) on Equity Securities per Unit, 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 (shortfall) of
cash flow from operations over distributions declared and excess (shortfall) 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.
In March 2021, Artis unveiled a redefined strategy to achieve its vision and to create an asset management and investment platform, focused on value investing in
real estate.
The goal of the strategy is to generate meaningful long-term growth in NAV per unit by strengthening the balance sheet, driving organic growth and scaling-up
through value investing. As part of this strategy, Artis will concentrate its ownership in the highest and best return opportunities in an effort to maximize long-term
value for unitholders.
Business Strategy Update
Dispositions
Since the announcement of Artis's redefined strategy, the REIT 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 57 industrial properties, 14 office properties, 11 retail properties, a portion of a retail property and a parcel of
development land. Proceeds from dispositions provided capital to strengthen the balance sheet and to pursue other strategy initiatives. 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.
Normal Course Issuer Bid
Artis continues to view its Normal Course Issuer Bid ("NCIB") as a valuable tool to enhance unitholder value. The REIT's NCIB program has been active since the
announcement of the redefined strategy.
Under the NCIB that expired on December 16, 2021, Artis purchased 10,160,396 units at a weighted average price of $11.26, under the NCIB that expired on
December 16, 2022, Artis purchased 8,778,176 common units at a weighted-average price of $12.39, and under the NCIB that expired on December 18, 2023, Artis
purchased 7,860,942 units at a weighted-average price of $7.35, representing the maximum number of common units allowed under each of the terms. These units
were purchased at a significant discount to NAV per unit of $13.96 at December 31, 2023.
The REIT renewed the NCIB effective December 19, 2023, and as at December 31, 2023, the REIT had not purchased any common or preferred units under the
current term.
34 | Artis Real Estate Investment Trust
2023 Annual Report | 35
Management’s Discussion & AnalysisManagement’s Discussion & Analysis While higher interest rates and other macro economic factors continue to impact the real estate sector, Artis continues to focus on the REIT's disposition strategy
and has confidence that it will be able to successfully execute this strategy in the coming year. During 2023, Artis sold nine industrial properties, five retail
properties, three office properties and a parcel of development land for an aggregate sale price of $322,431. The sale proceeds, net of costs of $11,284, related
debt of $75,512 and the issuance of a note receivable of $13,619 were $222,016. Subsequent to December 31, 2023, Artis sold one industrial, one office and one
retail property located in Winnipeg, Manitoba, and has an additional 12 properties under unconditional sale agreements. Proceeds from transactions is expected
to be used to continue reducing overall debt. Management is closely monitoring interest rate trends and forecasts and is in ongoing discussions with lenders in
order to manage its debt maturities schedule.
On August 2, 2023, the Board established a Special Committee to initiate a strategic review process to consider and evaluate strategic alternatives that may be
available to the REIT to unlock and maximize value for unitholders. During this process, Artis continues to focus on improving its balance sheet and, more
specifically, reducing debt and increasing liquidity through its previously disclosed disposition strategy. Effective December 19, 2022, the REIT renewed its NCIB
and, as at December 31, 2023, had purchased 7,860,942 units at a weighted-average price of $7.35 under the term, representing the maximum number of common
units allowed under the term. These units were purchased at a significant discount to NAV per unit of $13.96 at December 31, 2023. Going forward, Artis
continues to view the NCIB as a compelling tool to enhance unitholder value and, when permitted, will continue to focus on buying back units using the NCIB so
long as Artis’s units continue to trade at a material discount to its NAV per unit. Further, the Board may consider additional mechanisms that are available to the
REIT for returning capital to unitholders, including, subject to market and other conditions, other unit repurchases.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") UPDATE
As part of Artis's vision, to become a best-in-class real estate asset management and investment platform focused on value investing, 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. During 2023, notable initiatives and improvement to Artis's ESG program included the following:
•
•
•
•
•
•
•
•
•
Published an enhanced ESG Report, incorporating the principles of the Sustainability Accounting Standards Board ("SASB") Real Estate Sustainability
Accounting Standard, Global Reporting Initiative ("GRI") 2021 Universal Standards and the United Nations Sustainable Development Goals;
Disclosed climate-related risk management activities in accordance with the Task Force on Climate-Related Financial Disclosures ("TCFD");
Adopted several new policies, including an ESG Policy, Human Rights Policy, Diversity, Equity and Inclusion Policy, Supplier Code of Conduct, and
disclosed a Health and Safety Policy Statement;
Adopted a company-wide LED Lighting Conversion Policy;
Conducted second annual employee engagement survey and tenant satisfaction survey;
Published a Tenant Sustainability Guide as a resources for tenants to make their space more sustainable;
Provided leadership training to employees;
Formed a Health and Safety Committee and a Diversity, Equity and Inclusion Committee; and
Conducted a portfolio-wide, property-level climate risk assessment.
Additional information about Artis's comprehensive corporate sustainability program, including a copy of Artis's most recent ESG Report can be accessed on the
REIT's website at the following link: www.artisreit.com.
Operations and Developments
Organic growth is an important element of Artis's strategy. Artis's management is focused on identifying operational efficiencies, increasing occupancy and in-
place rents, and the completion of new development projects.
Occupancy at December 31, 2023, was stable at 90.1%, unchanged from December 31, 2022. In 2023, 1,163,799 square feet of new leases and 1,024,276 square
feet of renewals commenced. These renewals were negotiated at a weighted-average rental increase when compared to expiring rents of 4.8%. Growth in Same
Property NOI was 7.6% for the year ended December 31, 2023.
During 2023, Artis completed three development projects, Park Lucero East, Blaine 35 II and 300 Main.
Park Lucero East is an industrial property located in the Greater Phoenix Area, Arizona which comprises 561,000 square feet and is 100.0% leased. Artis has a 10%
ownership interest in Park Lucero East as well as a development management contract.
Blaine 35 II, located in the Twin Cities Area, Minnesota comprises two single-tenant industrial buildings. The first building totals 98,900 square feet was 100.0%
committed upon completion. The lease for the entire building commenced in the fourth quarter of 2023. The second building totals 100,000 square feet and was
100.0% occupied upon completion.
300 Main is a 580,000 square foot commercial and residential development project 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 is 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. Residential tenants began moving into the building on July 1, 2023, and leasing of the remaining apartment units is currently underway.
Strategic Value Investments
During 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. Refer to the Equity Accounted Investments and Preferred Investments sections of this MD&A for further
information.
At December 31, 2023, Artis held equity securities with an aggregate fair value of $152,002. This includes equity securities of Dream Office Real Estate Investment
Trust and First Capital Real Estate Investment Trust.
DBRS Credit Rating
The REIT's senior unsecured debentures have a Morningstar DBRS ("DBRS") rating of BBB (low) and the REIT's preferred trust units have a DBRS rating at Pfd-3
(low), both with Negative trends, as confirmed in DBRS's Rating Report dated February 13, 2024.
The successful execution of Artis's strategy requires suitable opportunities, careful timing, patience 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 its strategy 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.
UPDATE ON STRATEGIC REVIEW
On August 2, 2023, Artis's Board of Trustees (the "Board") established a Special Committee to initiate a strategic review process to consider and evaluate
alternatives that may be available to the REIT to unlock and maximize value for unitholders. Since that time, Artis has entered into unconditional sale agreements
or completed sales of nearly $500,000 (in line with IFRS) and will continue to remain focused on unlocking value, enhancing liquidity and maximizing NAV per unit.
On September 11, 2023, the Board announced that the Special Committee retained BMO Nesbitt Burns Inc. to provide financial advisory services to the REIT and
Special Committee in connection with the strategic review process.
Over the past several months, the Special Committee and the Board have been working with the REIT’s financial advisors to explore options available to unlock
and maximize value for unitholders, including the potential sale of the REIT. In the current market, Artis and its advisors do not believe that there is a buyer
prepared to acquire the REIT at a reasonable value relative to management’s latest published NAV per unit of $13.96. There continues to be a healthy appetite in
the private transaction environment for quality retail and industrial assets. There is also buyer interest for certain office assets, but office buyers in general are
expecting bargain prices or vendor financing, neither of which are compatible with Artis’s desire to generate financial liquidity from dispositions.
Since the announcement of the strategic review, Artis has completed or entered into unconditional agreements for $161,896 of office sales at values and on terms
that were acceptable to the REIT, and will continue to consider further office dispositions. In addition, Artis has completed or entered into unconditional sale
agreements for $256,200 of retail assets and $55,495 of industrial assets. This equates to $473,591 of asset sales (in line with the REIT's IFRS values reported at
December 31, 2023), including unconditional transactions, since August 2, 2023. The REIT is continuing to evaluate opportunities relating to the sale of additional
retail, office, and industrial assets, with a focus on the industrial portfolio, in its efforts to further deleverage and strengthen the balance sheet, grow NAV per unit,
and enhance liquidity. A portion of this liquidity may be directed towards the NCIB which was renewed on December 19, 2023.
The Board remains committed to pursuing strategic alternatives that may be available to the REIT to unlock and maximize value for unitholders, including pursuing
near-term opportunities available to Artis to enhance and grow NAV per unit. The work undertaken over the past several months has enabled Artis to properly
assess the current environment and options available to the REIT in an effort to create and maximize value for unitholders.
There can be no assurance that the strategic review process will result in the REIT pursuing any transaction. The REIT has not set a timetable for completion of this
process and does not intend to disclose further developments unless it determines that disclosure is appropriate or necessary.
BUSINESS ENVIRONMENT AND OUTLOOK
Leasing activity in the REIT's portfolio remained strong throughout 2023. Occupancy including commitments was 90.9% at December 31, 2023, compared to 92.3%
at December 31, 2022. In 2023, 1,903,218 square feet of new leases and renewals were negotiated and signed (some of which were at properties that are held in
joint venture arrangements). With respect to new leases and renewals that commenced during the year, 1,163,799 square feet of new leases and 1,024,276 square
feet of renewals began. The renewals that commenced in 2023 were negotiated at a weighted-average increase of 4.8% over expiring rates. The fourth quarter
marked the twelfth consecutive quarter of growth in weighted-average rental rates on renewals. There has been a high volume of leasing activity in 2023 and this
continues to demonstrate the strong demand for high-quality, well-located space across all three asset classes. Year-over-year Same Property NOI growth for the
year ended December 31, 2023, was strong at 7.6%. The increase in weighted-average renewal rents and Same Property NOI growth are important indicators of
the stability of the REIT’s portfolio and are reflective of the leasing momentum that has been building over the last year.
36 | Artis Real Estate Investment Trust
2023 Annual Report | 37
Management’s Discussion & AnalysisManagement’s Discussion & Analysis 2023 OVERVIEW
SELECTED FINANCIAL INFORMATION
000's, except per unit amounts
2023
2022
Change
Change
2021
Year ended
December 31,
Year ended
%
December 31,
Revenue
Net operating income
Net (loss) income
Total comprehensive (loss) income
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) (3)
FFO per unit - diluted (2) (3)
FFO payout ratio (2)
AFFO (2) (3)
AFFO per unit - diluted (2) (3)
AFFO payout ratio (2)
Same Property NOI growth (decline) (2)
Adjusted EBITDA interest coverage ratio (2)
$
335,837
$
372,512
$
184,017
(332,068)
(364,399)
(3.10)
(3.10)
209,980
(5,294)
105,537
(0.18)
(0.19)
$
0.60
$
—
1.48
1.67
$
0.76
1.06
1.37
1.50
$
120,539
$
163,189
$
1.08
55.6 %
1.38
43.5 %
$
69,998
$
110,950
$
0.63
95.2 %
7.6 %
2.08
0.94
63.8 %
1.8 %
2.98
(36,675)
(25,963)
(326,774)
(469,936)
(2.92)
(2.91)
(0.16)
(1.06)
0.11
0.17
(42,650)
(0.30)
(40,952)
(0.31)
(9.8) % $
(12.4) %
6,172.5 %
(445.3) %
1,622.2 %
1,531.6 %
(21.1) % $
(100.0) %
8.0 %
11.3 %
419,499
237,785
389,175
387,702
2.87
2.86
2.98
1.42
1.37
1.50
(26.1) % $
174,343
(21.7) %
12.1 %
1.34
44.0 %
(36.9) % $
124,476
(33.0) %
31.4 %
5.8 %
0.96
61.5 %
(4.1) %
(0.90)
(30.2) %
3.80
(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 of this MD&A.
(3) The REIT also calculates FFO and AFFO, adjusted for the impact of the realized gain (loss) on equity securities. Refer to FFO and AFFO section of this MD&A.
000's, except per unit amounts
Total assets
Total non-current financial liabilities
NAV per unit (1)
Secured mortgages and loans to GBV (1)
Total debt to GBV (1)
Unencumbered assets (1)
December 31,
December 31,
%
December 31,
2023
2022
Change
2021
$
3,735,030
$
4,553,913
(18.0) % $
4,576,024
1,047,231
13.96
24.3 %
50.9 %
974,063
17.38
18.9 %
48.5 %
7.5 %
1,166,123
(19.7) %
5.4 %
2.4 %
17.37
23.7 %
42.9 %
$
1,567,001
$
2,034,409
(23.0) % $
1,902,748
(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
Revenue and net operating income decreased year-over-year primarily due to the impact of property dispositions throughout 2022 and 2023.
Artis reported portfolio occupancy of 90.1% at December 31, 2023, unchanged from December 31, 2022. During the year, 1,163,799 square feet of new leases and
1,024,276 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 4.8%.
Net (loss) income and total comprehensive (loss) income were impacted by the fair value change on investment properties (loss of $344,286 in 2023, compared to a
loss of $178,431 in 2022), net loss from equity accounted investments (loss of $57,385 in 2023, compared to income of $74,659 in 2022), interest expense ($121,876
in 2023, compared to $89,437 in 2022) and the fair value change on financial instruments (loss of $41,730 in 2023, compared to a loss of $21,130 in 2022).
Partially offsetting the above decreases to net income was interest and other income ($32,359 in 2023, compared to $18,944 in 2022), distribution income from
equity securities ($12,365 in 2023, compared to $10,710 in 2022), equity securities expenses ($878 in 2023, compared to $1,890 in 2022) and corporate expenses
($6,984 in 2023, compared to $7,661 in 2022).
Foreign exchange had an impact on Artis's financial results, due to a higher US dollar to Canadian dollar average exchange rate of 1.3495 in 2023, compared to
1.3017 in 2022.
FFO per unit (diluted) for 2023 was $1.08 compared to $1.38 for 2022, while AFFO per unit (diluted) for 2023 was $0.63 compared to $0.94 for 2022. FFO in 2023
was primarily impacted by decreased net operating income as a result of dispositions completed in 2022 and 2023 and increased interest expense, partially offset
by an increase to other income due to the preferred investment as part of the Cominar Transaction. In 2023, Artis sold certain equity securities (refer to Equity
Securities section of this MD&A). Including the impact of the realized loss on the disposition of equity securities, FFO per unit (diluted) for 2023 was $0.89, while
AFFO per unit (diluted) for 2023 was $0.44.
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 FFO and AFFO payout ratios of 55.6% and 95.2%, respectively, for 2023.
Balance Sheet and Liquidity
During 2023, Artis repaid a net balance of $53,020 on its revolving credit facilities and repaid the Series D senior unsecured debentures upon maturity with a face
value of $250,000. Also during 2023, the REIT drew on construction loans in the amount of $188,898, received new mortgage financing in the amount of $124,767,
and repaid mortgages in the amount of $175,086. Total debt to GBV was 50.9% at December 31, 2023, compared to 48.5% at December 31, 2022.
In 2023, Artis utilized the NCIB to purchase 7,473,874 common units for an aggregate market price of $54,305, and 357,101 Series E and 226,700 Series I preferred
units for an aggregate market price of $10,377. The REIT has purchased the maximum number of common units allowed under the term of the NCIB that expired
on December 18, 2023.
At December 31, 2023, NAV per unit was $13.96, compared to $17.38 at December 31, 2022. The change is primarily due to the fair value losses on investment
properties and financial instruments, interest expense, corporate expenses, distributions to unitholders and the impact of foreign exchange, partially offset by the
impact of net operating income, units purchased under the NCIB, interest and other income and distribution income from equity securities.
Distributions
In 2023, Artis declared distributions of $79,458 to unitholders, which included distributions to preferred unitholders in the amount of $13,025.
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, 2022
New developments
Dispositions
59
2
(9)
6,749
199
(1,247)
42
—
(3)
6,573
—
(350)
33
—
(5)
2,143
—
(340)
134
15,465
2
(17)
199
(1,937)
Portfolio properties, December 31, 2023
52
5,701
39
6,223
28
1,803
119
13,727
In addition, Artis owns one commercial/residential property which comprises 395 residential units and 18,481 square feet of leasable commercial space.
New Developments
In 2023, Artis completed the development of Blaine 35 II, comprised of two industrial buildings totalling 198,900 square feet, located in the Twin Cities Area,
Minnesota and 300 Main, a commercial/residential property totalling 395 residential units and 18,481 square feet of leasable commercial space located in
Winnipeg, Manitoba.
Dispositions
During 2023, Artis sold nine industrial properties, five retail properties, three office properties and a parcel of development land for an aggregate sale price of
$322,431. The sale proceeds, net of costs of $11,284, related debt of $75,512 and the issuance of a note receivable of $13,619 were $222,016.
38 | Artis Real Estate Investment Trust
2023 Annual Report | 39
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
PROPERTY PORTFOLIO
At December 31, 2023, the REIT's portfolio was comprised of 119 commercial properties totalling approximately 13.7 million square feet ("S.F.") of gross leasable
area ("GLA").
The REIT also has joint ownership interest in 11 investment properties, 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 the Equity Accounted
Investments section of this MD&A for further information.
Diversification by Geographical Region
GLA
Net Operating Income (Q4-23)
WI 12.8%
AB 12.1%
BC 2.3%
WI 15.6%
AB 16.2%
TX 12.2%
MN 15.8%
MB 26.5%
TX 7.8%
MN 17.7%
BC 3.4%
MB 18.9%
CO 1.2%
ON 0.7%
AZ 12.8%
SK 3.6%
ON 1.4%
SK 4.1%
AZ 14.9%
Canada
U.S.
45.2%
54.8%
Canada
U.S.
44.0%
56.0%
Diversification by Asset Class
GLA
Net Operating Income (Q4-23)
Retail
13.2%
Office
45.2%
Retail 19.3%
Industrial 30.0%
Industrial
41.6%
Office
50.7%
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 Toronto Area
Office total
Retail
Greater Vancouver Area
Winnipeg
Calgary
Fort McMurray
Grande Prairie
Greater Edmonton Area
Saskatoon
Winnipeg
Retail total
Total Canadian portfolio
Greater Phoenix Area
Twin Cities Area
Greater Houston Area
Greater Denver Area
Greater Phoenix Area
Madison
Twin Cities Area
U.S. portfolio:
Industrial
Industrial total
Office
Office total
Total U.S. portfolio
Province /
State
Property
count
Owned share
of GLA
(000's S.F.)
% of
portfolio
GLA
%
Occupied
%
Committed (2)
AB
AB
BC
AB
SK
MB
ON
BC
MB
AB
AB
AB
AB
SK
MB
AZ
MN
TX
CO
AZ
WI
MN
4
2
1
1
2
26
36
1
2
9
12
4
8
4
3
3
6
28
76
7
4
5
16
1
4
16
6
27
43
319
94
73
126
269
1,658
2,539
100
248
1,512
1,860
294
187
311
331
219
461
2.3 %
0.7 %
0.5 %
0.9 %
2.0 %
12.1 %
18.5 %
0.7 %
1.8 %
11.0 %
13.5 %
2.1 %
1.4 %
2.3 %
2.4 %
1.6 %
3.4 %
1,803
13.2 %
87.6 %
100.0 %
100.0 %
76.3 %
100.0 %
97.7 %
95.8 %
100.0 %
90.1 %
82.1 %
84.1 %
95.7 %
81.7 %
57.6 %
94.8 %
91.1 %
97.2 %
87.3 %
87.6 %
100.0 %
100.0 %
85.2 %
100.0 %
98.0 %
96.4 %
100.0 %
90.1 %
82.3 %
84.3 %
96.0 %
84.5 %
57.6 %
95.2 %
97.0 %
98.9 %
88.9 %
6,202
45.2 %
89.8 %
90.6 %
921
573
1,668
3,162
173
833
1,763
1,594
4,363
7,525
6.7 %
4.2 %
12.2 %
23.1 %
1.2 %
6.1 %
12.8 %
11.6 %
31.7 %
97.2 %
100.0 %
100.0 %
99.2 %
59.0 %
91.2 %
81.2 %
85.5 %
83.8 %
97.2 %
100.0 %
100.0 %
99.2 %
59.0 %
91.4 %
84.4 %
85.9 %
85.3 %
54.8 %
90.3 %
91.1 %
Total Canadian and U.S. portfolio
119
13,727
100.0 %
90.1 %
90.9 %
(1) Information is as at December 31, 2023, and excludes properties held in equity accounted investments and Artis's commercial/residential property (300 Main).
(2) Percentage committed is based on occupancy at December 31, 2023, plus commitments on vacant space.
Future Development Program
Asset class
City
Province / State
Estimated owned share of
GLA (000's of S.F.)
Property
Industrial
Office
Greater Houston Area
Madison
TX
WI
650
50
Cedar Port - Future Phases
Heartland Trail Land
Additional information about these developments will be released as progress is made and key milestones are achieved.
40 | Artis Real Estate Investment Trust
2023 Annual Report | 41
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
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,
2023, the REIT's industrial portfolio was comprised of 52 properties totalling approximately 5.7 million square feet of gross leasable area.
At December 31, 2023, the fair value of the properties in Artis’s industrial portfolio was $930,584, and represented 41.6% of the REIT’s GLA at December 31, 2023,
and 30.0% of Q4-23 net operating income. Below is a breakdown of REIT’s industrial portfolio by geographical region:
GLA
AB 9.5%
BC 1.3%
TX 29.3%
Net Operating Income (Q4-23)
TX 26.2%
AB 13.4%
BC 1.5%
MB 29.1%
MB 19.7%
MN 10.0%
MN 11.1%
AZ 16.1%
SK 4.7%
Canada
U.S.
44.6%
55.4%
SK 5.6%
AZ 22.5%
Canada
U.S.
40.2%
59.8%
The following is a historical summary of key performance indicators related to the REIT’s industrial portfolio:
Q4-23
Q3-23
Q2-23
Q1-23
Q4-22
Q3-22
Q2-22
Q1-22
Number of properties
Occupancy (including commitments) (2)
Same Property NOI growth (decline) (1)
52
98.0 %
17.6 %
53
97.7 %
21.3 %
53
98.5 %
10.3 %
61
96.8 %
7.6 %
59
97.3 %
7.6 %
76
95.3 %
4.4 %
75
95.0 %
4.5 %
75
95.2 %
— %
Leasable area renewed (in S.F.) (2)
Increase in weighted-average rental rate (2)
81,825
58,297
152,182
144,617
189,058
313,782
167,209
157,318
17.5 %
3.8 %
7.4 %
8.6 %
19.2 %
5.5 %
18.3 %
12.2 %
(1) Represents a non-GAAP measure . Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
(2) Based on owned share of GLA of properties and excludes properties held in equity accounted investments. Refer to Property Portfolio section of this MD&A.
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
Q4-23 net operating income:
The following is a list of Artis’s top 10 industrial tenants by gross revenue:
Top 10 Industrial Tenants by Gross Revenue (1)
Tenant
PBP, Inc.
Bell Canada
Silent Aire USA Inc.
Civeo Canada Ltd.
Maple Leaf Consumer Foods Inc.
SunGard Recovery Services Inc.
Footprint LLC
Malark Logistics Inc.
British Columbia Institute of Technology
VWR International, LLC
Tenant
location
U.S.
Canada
U.S.
Canada
Canada
U.S.
U.S.
U.S.
Canada
U.S.
% of total industrial
gross revenue (2)
Owned share of GLA
(000's of S.F.)
% of total
industrial GLA
Weighted-average
remaining lease
term
5.7 %
5.6 %
4.6 %
4.1 %
3.4 %
3.3 %
2.5 %
2.3 %
2.2 %
2.1 %
518
110
288
71
163
98
131
174
72
125
9.1 %
1.9 %
5.1 %
1.2 %
2.9 %
1.7 %
2.3 %
3.1 %
1.3 %
2.2 %
7.9
6.0
4.0
4.5
5.5
2.0
6.1
9.6
20.6
3.9
6.7
Total
35.8 %
1,750
30.8 %
(1) Based on owned share of GLA of properties and excludes properties in equity accounted investments. Refer to the Property Portfolio section of this MD&A.
(2) Total gross revenue is in Canadian and US dollars.
Office Portfolio
Artis’s office portfolio is strategically located across primary and secondary markets in both Canada and the U.S. At December 31, 2023, the REIT's office portfolio
was comprised of 39 properties totalling approximately 6.2 million square feet of gross leasable area.
At December 31, 2023, the fair value of the properties in Artis’s office portfolio was $1,377,285, representing 45.2% of the REIT’s GLA at December 31, 2023, and
50.7% of Q4-23 net operating income. Below is a breakdown of REIT’s office portfolio by geographical region:
WI 28.3%
MN 25.6%
GLA
BC 4.0%
Net Operating Income (Q4-23)
AB 1.1%
BC 5.8%
WI 31.0%
MB 24.3%
ON 1.6%
AZ 13.4%
CO 2.8%
Canada
U.S.
29.9%
70.1%
MB 14.9%
ON 3.0%
AZ 15.5%
MN 28.7%
Canada
U.S.
24.8%
75.2%
Single tenant 40.7%
The following is a historical summary of key performance indicators related to the REIT’s office portfolio:
Multi-tenant 59.3%
Artis's industrial portfolio includes 212 tenant leases with a weighted-average term to maturity of 4.2 years. Approximately 37.3% of the REIT's industrial gross
revenue is derived from national or government tenants. As indicated below, the largest tenant by gross revenue is PBP, Inc., which specializes in the packaging,
warehousing, and handling of plastic resin.
Q4-23
Q3-23
Q2-23
Q1-23
Q4-22
Q3-22
Q2-22
Q1-22
Number of properties
Occupancy (including commitments) (2)
Same Property NOI growth (decline) (1)
39
85.0 %
4.3 %
40
85.4 %
1.3 %
41
86.7 %
8.0 %
41
86.3 %
11.7 %
42
87.3 %
7.0 %
43
87.4 %
6.1 %
44
88.3 %
(1.4) %
45
87.2 %
(6.4) %
Leasable area renewed (in S.F.) (2)
Increase (decrease) in weighted-average rental rate (2)
100,828
66,159
31,778
48,873
58,967
109,383
143,219
22,302
0.7 %
(5.3) %
2.7 %
(1.7) %
(0.7) %
(0.4) %
1.0 %
7.9 %
(1) Represents a non-GAAP measure. Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
(2) Based on owned share of GLA of properties and excludes properties held in equity accounted investments. Refer to the Property Portfolio section of this MD&A.
42 | Artis Real Estate Investment Trust
2023 Annual Report | 43
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
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 Q4-23 net operating income:
Retail Portfolio
Downtown 22.0%
Artis's retail portfolio is primarily open-air, service-based properties located across Western Canada. At December 31, 2023, the REIT's retail portfolio was
comprised of 28 properties totalling approximately 1.8 million square feet of gross leasable area.
At December 31, 2023, the fair value of the properties in Artis's retail portfolio was $549,740, and represented 13.2% of the REIT’s GLA at December 31, 2023, and
19.3% of Q4-23 net operating income. Below is a breakdown of REIT’s retail portfolio by geographical region:
GLA
SK 12.1%
Net Operating Income (Q4-23)
SK 12.4%
Suburban 78.0%
MB 25.6%
AB 62.3%
MB 26.2%
AB 61.4%
Artis's office portfolio includes 467 tenant leases with a weighted-average term to maturity of 5.2 years. Approximately 45.6% 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.
The following is a list of Artis's top 10 office tenants by gross revenue:
Top 10 Office Tenants by Gross Revenue (1)
Tenant location
% of total office
gross revenue (2)
Owned share of GLA
(000's of S.F.)
% of total
office GLA
Weighted-average
remaining lease term
Tenant
Government Tenants
Prime Therapeutics LLC
Bell MTS
Catalent Pharma Solutions, LLC
A WIN Management, Inc.
CB Richard Ellis, Inc.
TDS Telecommunications Corporation
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 %
4.4 %
3.9 %
3.1 %
3.0 %
2.8 %
2.6 %
2.5 %
2.2 %
1.9 %
427
386
213
233
153
108
127
100
124
105
6.9 %
6.2 %
3.4 %
3.7 %
2.5 %
1.7 %
2.0 %
1.6 %
2.0 %
1.7 %
Total
33.8 %
1,976
31.7 %
(1) Based on owned share of GLA of properties and excludes properties held in equity accounted investments. Refer to the Property Portfolio section of this MD&A.
(2) Total gross revenue is in Canadian and US dollars.
7.2
10.8
3.0
12.6
8.9
3.0
6.0
5.0
9.6
0.3
7.6
The following is a historical summary of key performance indicators related to the REIT’s retail portfolio:
Q4-23
Q3-23
Q2-23
Q1-23
Q4-22
Q3-22
Q2-22
Q1-22
Number of properties
Occupancy (including commitments)
Same Property NOI growth (decline) (1)
28
88.9 %
12.4 %
28
89.7 %
(2.6) %
28
89.5 %
(0.5) %
33
90.6 %
2.3 %
33
91.4 %
(1.8) %
33
92.3 %
(0.4) %
33
91.4 %
(0.6) %
33
91.4 %
2.9 %
Leasable area renewed (in S.F.)
79,236
53,331
85,066
122,084
77,336
63,772
77,996
76,195
Increase (decrease) in weighted-average rental rate
Occupancy (including commitments)
Same Property NOI growth (decline) (1)
Leasable area renewed (in S.F.)
Number of properties
Retail Portfolio
MB 25.6%
SK 12.1%
GLA
Artis's retail portfolio is primarily open-air, service-based properties located across Western Canada. At December 31, 2023, the REIT's retail portfolio was
comprised of 28 properties totalling approximately 1.8 million square feet of gross leasable area.
At December 31, 2023, the fair value of the properties in Artis's retail portfolio was $549,740, and represented 13.2% of the REIT’s GLA at December 31, 2023, and
19.3% of Q4-23 net operating income. Below is a breakdown of REIT’s retail portfolio by geographical region:
Net Operating Income (Q4-23)
SK 12.4%
AB 62.3%
MB 26.2%
AB 61.4%
The following is a historical summary of key performance indicators related to the REIT’s retail portfolio:
Q4-23
Q3-23
Q2-23
Q1-23
Q4-22
Q3-22
Q2-22
Q1-22
28
88.9 %
12.4 %
28
89.7 %
(2.6) %
28
89.5 %
(0.5) %
33
90.6 %
2.3 %
33
91.4 %
(1.8) %
33
92.3 %
(0.4) %
33
91.4 %
(0.6) %
33
91.4 %
2.9 %
79,236
53,331
85,066
122,084
77,336
63,772
77,996
76,195
10.2 %
11.5 %
3.7 %
6.1 %
5.2 %
5.1 %
(3.8) %
4.5 %
Increase (decrease) in weighted-average rental rate
(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 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 Q4-23 net operating income:
10.2 %
11.5 %
3.7 %
6.1 %
5.2 %
5.1 %
(3.8) %
4.5 %
(1) Represents a non-GAAP measure . Refer to the Notice with Respect to Non-GAAP & Supplementary Measures Disclosure section in this MD&A.
Community Centre
(100,000 - 400,000 SF)
43.3%
Convenience Centre
(10,000 - 39,999 SF) 9.1%
Neighbourhood Centre
(40,000 - 99,999 SF)
47.6%
Artis's retail portfolio includes 299 tenant leases with a weighted-average term to maturity of 5.4 years. Approximately 63.3% of the REIT's retail gross revenue is
derived from national tenants. As indicated below, the largest tenant by gross revenue is Cineplex Entertainment, the largest cinema chain in Canada, operating in
the film entertainment, amusement and leisure, and media sectors.
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 Q4-23 net operating income:
Community Centre
(100,000 - 400,000 SF)
43.3%
Convenience Centre
(10,000 - 39,999 SF) 9.1%
Neighbourhood Centre
(40,000 - 99,999 SF)
47.6%
Artis's retail portfolio includes 299 tenant leases with a weighted-average term to maturity of 5.4 years. Approximately 63.3% of the REIT's retail gross revenue is
derived from national tenants. As indicated below, the largest tenant by gross revenue is Cineplex Entertainment, the largest cinema chain in Canada, operating in
the film entertainment, amusement and leisure, and media sectors.
44 | Artis Real Estate Investment Trust
2023 Annual Report | 45
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
The following is a list of Artis’s top 10 retail tenants by gross revenue:
Occupancy Report by Geographical Region (1)
Tenant
Tenant location
% of total retail
gross revenue
Owned share of GLA
(000's of S.F.)
% of total
retail GLA
Weighted-average
remaining lease term
Top 10 Retail Tenants by Gross Revenue
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Cineplex Entertainment LP
Sport Chek International Ltd.
Winners
Jysk Linen 'n Furniture
The Brick
Shoppers Drug Mart
Lucky Supermarket
PetSmart, Inc.
Mark's Work Wearhouse
Sobeys
Total
Residential Portfolio
4.5 %
4.1 %
3.4 %
3.0 %
2.9 %
2.4 %
2.3 %
2.2 %
1.9 %
1.8 %
107
81
83
75
62
35
50
40
32
37
5.9 %
4.5 %
4.6 %
4.2 %
3.4 %
1.9 %
2.8 %
2.2 %
1.8 %
2.1 %
28.5 %
602
33.4 %
1.9
4.5
3.9
1.5
1.4
6.9
13.9
3.3
2.8
4.3
4.0
Artis's residential portfolio is comprised of one property, 300 Main, located in Winnipeg, Manitoba.
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 span nearly one city block. 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 is a best-in-class amenity-rich apartment building with main floor
commercial space.
During 2022, Earls Kitchen & Bar, occupying approximately 7,400 square feet, moved into their space on the main floor of the building. Residential tenants began
moving into the building on July 1, 2023, and leasing of the remaining apartment units is currently underway.
PORTFOLIO OCCUPANCY
Occupancy levels impact the REIT's revenues and net operating income. Occupancy and commitments at December 31, 2023, and the previous four quarterly
periods, were as follows:
Occupancy Report by Asset Class (1)
Q4-23 %
Committed (2)
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Total Canada
U.S.:
Arizona
Colorado
Minnesota
Texas
Wisconsin
Total U.S.
Q4-23%
Committed (2)
Q4-23
Q3-23
Q2-23
Q1-23
Q4-22
85.2 %
92.4 %
91.6 %
100.0 %
98.7 %
90.6 %
94.5 %
59.0 %
89.6 %
100.0 %
84.4 %
91.1 %
84.0 %
92.4 %
91.1 %
100.0 %
96.0 %
89.8 %
94.4 %
59.0 %
89.4 %
100.0 %
81.2 %
90.3 %
81.7 %
92.4 %
91.3 %
100.0 %
96.4 %
89.3 %
96.3 %
64.8 %
88.8 %
98.1 %
81.7 %
90.4 %
80.4 %
92.4 %
92.3 %
100.0 %
99.4 %
89.7 %
96.9 %
67.0 %
89.4 %
98.1 %
81.5 %
90.7 %
83.6 %
92.1 %
92.4 %
100.0 %
99.8 %
90.5 %
96.7 %
67.0 %
89.2 %
98.1 %
82.0 %
90.5 %
84.7 %
92.1 %
91.4 %
100.0 %
98.6 %
90.2 %
95.3 %
87.7 %
86.5 %
98.1 %
83.6 %
89.9 %
Total portfolio
90.9 %
90.1 %
89.9 %
90.3 %
90.5 %
90.1 %
(1) Information is as at December 31, 2023, and excludes properties held in equity accounted investments and Artis's commercial/residential property (300 Main). Refer to the Property
Portfolio section of this MD&A.
(2) Percentage committed is based on occupancy at December 31, 2023, plus commitments on vacant space.
PORTFOLIO LEASING ACTIVITY AND LEASE EXPIRIES
Renewal Summary (1)
Leasable area renewed (in S.F.)
261,889
177,787
269,026
315,574
325,361
486,937
388,424
255,815
Increase in weighted-average rental rate
5.8 %
3.5 %
4.6 %
4.8 %
6.9 %
3.0 %
3.7 %
7.8 %
Q4-23
Q3-23
Q2-23
Q1-23
Q4-22
Q3-22
Q2-22
Q1-22
Q4-23
Q3-23
Q2-23
Q1-23
Q4-22
(1) Based on owned share of GLA of properties and excludes properties held in equity accounted investments and Artis's commercial/residential property (300 Main). Refer to the Property
Portfolio section of this MD&A.
Industrial
Office
Retail
98.0 %
85.0 %
88.9 %
97.7 %
83.9 %
87.3 %
97.0 %
84.2 %
87.1 %
97.5 %
84.6 %
87.3 %
96.0 %
84.6 %
90.2 %
94.1 %
85.7 %
90.9 %
Total portfolio
90.9 %
90.1 %
89.9 %
90.3 %
90.5 %
90.1 %
(1) Information is as at December 31, 2023, and excludes properties held in equity accounted investments and Artis's commercial/residential property (300 Main). Refer to the Property
Portfolio section of this MD&A.
(2) Percentage committed is based on occupancy at December 31, 2023, plus commitments on vacant space.
In 2023, 1,024,276 square feet were renewed at an increase in the weighted-average rental rate of 4.8%, compared to 1,456,537 square feet renewed at an increase
in the weighted-average rental rate of 4.9% in 2022.
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, 2023, 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, 2023, were estimated to be 1.7% below in-place
rents across the portfolio, compared to 0.9% below in-place rents at September 30, 2023 and 1.1% above in-place rents at December 31, 2022. Today's market
rents for the 2024 and 2025 lease expiries are estimated to be 3.0% and 1.9% 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.
46 | Artis Real Estate Investment Trust
2023 Annual Report | 47
Management’s Discussion & AnalysisManagement’s Discussion & Analysis Lease Maturities and Rental Rates by Asset Class
Lease Maturities and Rental Rates by Geographical Location
Square Feet Expiring
% of GLA
Weighted-Average In-
Place Rental Rate
Weighted-Average
Market Rental Rate
Square Feet Expiring % of GLA
Weighted-Average In-
Place Rental Rate
Weighted-Average
Market Rental Rate
Industrial:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
Office:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
Retail:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
Total Portfolio:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
132,988
—
507,732
607,127
537,457
907,467
3,008,820
5,701,591
1,000,828
23,950
679,105
546,341
889,617
443,583
2,638,788
6,222,212
228,368
8,054
370,797
185,975
256,093
176,900
576,928
1,803,115
1,362,184
32,004
1,557,634
1,339,443
1,683,167
1,527,950
6,224,536
1.0 %
0.0 %
3.7 %
4.4 %
3.9 %
6.6 %
22.0 %
41.6 %
7.3 %
0.2 %
4.9 %
4.0 %
6.5 %
3.2 %
19.1 %
45.2 %
1.7 %
0.1 %
2.7 %
1.4 %
1.9 %
1.3 %
4.1 %
13.2 %
10.0 %
0.3 %
11.3 %
9.8 %
12.3 %
11.1 %
45.2 %
13,726,918
100.0 %
N/A
N/A
$7.89
$10.61
$8.76
$8.04
$8.90
$8.84
N/A
N/A
$19.63
$21.18
$19.18
$19.04
$18.44
$19.06
N/A
N/A
$24.01
$25.07
$24.79
$27.07
$23.97
$24.60
N/A
N/A
$16.85
$16.93
$16.71
$13.44
$14.34
$15.15
N/A
N/A
$8.02
$10.92
$9.70
$8.02
$8.43
$8.72
N/A
N/A
$18.72
$20.19
$18.57
$17.79
$18.75
$18.78
N/A
N/A
$23.46
$24.71
$24.99
$26.18
$22.75
$23.91
N/A
N/A
$16.36
$16.62
$16.72
$12.96
$14.13
$14.89
Alberta:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
British Columbia:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
Manitoba:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
Ontario:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
Saskatchewan:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
Arizona:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
265,341
8,054
203,511
202,203
234,842
142,166
605,904
1,662,021
24,508
1,906
58,256
19,532
49,268
7,930
159,325
320,725
322,166
10,999
601,101
418,525
777,942
288,156
1,212,478
3,631,367
—
—
—
—
—
—
100,398
100,398
19,435
—
47,547
12,339
20,581
164,266
223,531
487,699
98,735
—
165,558
350,629
210,069
361,411
568,027
1.9 %
0.1 %
1.5 %
1.5 %
1.7 %
1.0 %
4.4 %
12.1 %
0.2 %
0.0 %
0.4 %
0.1 %
0.4 %
0.1 %
1.1 %
2.3 %
2.4 %
0.1 %
4.4 %
3.0 %
5.7 %
2.1 %
8.8 %
26.5 %
0.0 %
0.0 %
0.0 %
0.0 %
0.0 %
0.0 %
0.7 %
0.7 %
0.1 %
0.1 %
0.3 %
0.1 %
0.1 %
1.2 %
1.7 %
3.6 %
0.8 %
0.0 %
1.2 %
2.6 %
1.5 %
2.6 %
4.1 %
1,754,429
12.8 %
N/A
N/A
$24.52
$22.82
$23.62
$25.26
$24.88
$24.35
N/A
N/A
$26.30
$27.06
$25.09
$29.77
$15.69
$20.50
N/A
N/A
$14.23
$12.32
$11.34
$12.64
$12.64
$12.58
N/A
N/A
N/A
N/A
N/A
N/A
$16.00
$16.00
N/A
N/A
$25.38
$26.84
$30.54
$13.63
$15.90
$17.00
N/A
N/A
$15.18
$17.10
$21.04
$11.87
$24.06
$18.65
N/A
N/A
$23.23
$22.49
$23.48
$23.65
$21.76
$22.57
N/A
N/A
$29.67
$27.48
$24.97
$28.45
$17.87
$22.32
N/A
N/A
$14.21
$12.88
$12.10
$12.46
$12.73
$12.85
N/A
N/A
N/A
N/A
N/A
N/A
$16.50
$16.50
N/A
N/A
$25.70
$27.13
$31.08
$14.00
$14.58
$16.56
N/A
N/A
$14.91
$17.20
$22.05
$11.94
$24.14
$18.82
48 | Artis Real Estate Investment Trust
2023 Annual Report | 49
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Lease Maturities and Rental Rates by Geographical Location (continued)
LARGEST MARKETS 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, retail and residential asset classes. For the
three months ended December 31, 2023, the five largest markets of the REIT's portfolio (by net operating income) were Madison office, Twin Cities Area office,
Greater Phoenix Area office, Greater Houston Area industrial and Winnipeg office.
Colorado:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
Minnesota:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
Texas:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
Wisconsin:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
Total portfolio:
Current vacancy
Monthly tenants
2024
2025
2026
2027
2028+
70,960
4,759
23,703
45,112
7,286
1,565
19,527
172,912
230,505
6,286
127,604
77,103
161,354
145,090
1,418,575
2,166,517
—
—
36,501
95,591
—
274,517
1,261,566
1,668,175
330,534
—
293,853
118,409
221,825
142,849
655,205
1,762,675
1,362,184
32,004
1,557,634
1,339,443
1,683,167
1,527,950
6,224,536
0.5 %
0.0 %
0.2 %
0.3 %
0.1 %
0.0 %
0.1 %
1.2 %
1.7 %
0.0 %
0.9 %
0.6 %
1.2 %
1.1 %
10.3 %
15.8 %
0.0 %
0.0 %
0.3 %
0.7 %
— %
2.0 %
9.2 %
12.2 %
2.4 %
0.0 %
2.1 %
0.9 %
1.6 %
1.0 %
4.8 %
12.8 %
10.0 %
0.3 %
11.3 %
9.8 %
12.3 %
11.1 %
45.2 %
13,726,918
100.0 %
N/A
N/A
$30.56
$31.81
$27.70
$49.50
$31.32
$31.38
N/A
N/A
$10.09
$21.50
$23.25
$16.67
$13.62
$14.74
N/A
N/A
$9.59
$8.30
N/A
$6.92
$6.42
$6.68
N/A
N/A
$17.30
$18.33
$15.84
$14.96
$14.49
$15.64
N/A
N/A
$16.85
$16.93
$16.71
$13.44
$14.34
$15.15
N/A
N/A
$29.19
$28.33
$27.65
$38.00
$28.26
$28.63
N/A
N/A
$9.29
$19.07
$19.55
$15.52
$13.88
$14.38
N/A
N/A
$8.40
$7.42
N/A
$6.20
$6.25
$6.36
N/A
N/A
$15.69
$16.53
$15.09
$13.99
$14.88
$15.13
N/A
N/A
$16.36
$16.62
$16.72
$12.96
$14.13
$14.89
Madison Office Market
The Madison office market represents 15.6% of Q4-23 net operating income and 12.8% of the overall portfolio by GLA. At December 31, 2023, Artis's Madison
office portfolio was 81.2% occupied, compared to 81.7% at September 30, 2023. During 2024, 293,853 square feet come up for renewal, which represents 2.1% of
the total portfolio GLA; 27.8% was renewed or committed to new leases at December 31, 2023. Of Artis's total Madison office GLA, 37.2% expires in 2028 or later.
Twin Cities Area Office Market
The Twin Cities Area office market represents 14.7% of Q4-23 net operating income and 11.6% 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, 2023, compared to 20.8% at September 30, 2023. At December 31, 2023, Artis's Twin Cities
Area office portfolio was 85.5% occupied, unchanged from September 30, 2023. During 2024, 47,004 square feet come up for renewal, which represents 0.3% of
the total portfolio GLA; 38.6% was renewed or committed to new leases at December 31, 2023. Of Artis's total Twin Cities Area office GLA, 58.1% expires in 2028
or later.
Greater Phoenix Area Office Market
The Greater Phoenix Area office market represents 8.1% of Q4-23 net operating income and 6.1% of the overall portfolio by GLA. The availability rate in the
Greater Phoenix Area office market, as reported by CBRE, was 24.6% at December 31, 2023, improved from 28.6% at September 30, 2023. At December 31, 2023,
Artis's Greater Phoenix Area office portfolio was 91.2% occupied, compared to 92.1% at September 30, 2023. During 2024, 56,754 square feet come up for
renewal, which represents 0.4% of the total portfolio GLA; 29.5% was renewed or committed to new leases at December 31, 2023. Of Artis's total Greater Phoenix
Area office GLA, 48.1% expires in 2028 or later.
Greater Houston Area Industrial Market
The Greater Houston Area industrial market represents 7.8% of Q4-23 net operating income and 12.2% 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, 2023, improved from 8.3% at September 30, 2023. At December 31,
2023, Artis's Greater Houston Area industrial portfolio was 100.0% occupied, increased from 98.1% at September 30, 2023. During 2024, one unit comprising
36,501 square feet comes up for renewal, which represents 0.3% of the total portfolio GLA; this unit has not been renewed or committed to a new lease at
December 31, 2023. Of Artis's total Greater Houston Area industrial market GLA, 75.6% expires in 2028 or later.
Winnipeg Office Market
The Winnipeg office market represents 7.7% of Q4-23 net operating income and 11.0% of the overall portfolio by GLA. Overall direct vacancy in the Winnipeg
office market, as reported by CBRE, was 18.3% at December 31, 2023, compared to 17.4% at September 30, 2023. At December 31, 2023, Artis's Winnipeg office
portfolio was 82.1% occupied, increased from 81.8% September 30, 2023. During 2024, 199,535 square feet come up for renewal, which represents 1.5% of the
total portfolio GLA; 26.7% was renewed or committed to new leases at December 31, 2023. Of Artis's total Winnipeg office market GLA, 29.7% expires in 2028 or
later.
50 | Artis Real Estate Investment Trust
2023 Annual Report | 51
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
FINANCIAL & OPERATING RESULTS
NET OPERATING INCOME
Revenue:
Rental income
Tenant inducements amortized to revenue
Straight-line rent adjustments
Lease termination income
Three months ended
December 31,
Year ended December 31,
2023
2022
2023
2022
$
86,033
$
97,905
$
356,759
$
389,041
(6,177)
509
527
(6,301)
424
2,074
(24,595)
(25,405)
2,554
1,119
1,379
7,497
80,892
94,102
335,837
372,512
Property operating and realty tax expenses
35,540
41,725
151,820
162,532
Net operating income
$
45,352
$
52,377
$
184,017
$
209,980
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 $612 (Q4-23 - $178) in 2023 compared to $1,189 (Q4-22 - $561) in 2022.
Net Operating Income by Asset Class
Three months ended
December 31,
Year ended December
31,
2023
2022
Change
2023
2022
Change
Canada:
Industrial
Office
Retail/residential
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail/residential
$
5,485 $
5,336 $
149
$
22,070 $
21,764 $
5,716
8,755
19,956
8,128
17,276
25,404
13,613
22,992
8,755
45,360
4,999
10,579
20,914
11,276
20,151
717
(1,824)
(958)
(3,148)
(2,875)
23,219
36,737
82,026
34,627
67,359
22,704
43,174
87,642
45,969
76,272
306
515
(6,437)
(5,616)
(11,342)
(8,913)
31,427
(6,023)
101,986
122,241
(20,255)
16,612
25,150
10,579
(2,999)
(2,158)
(1,824)
56,697
90,578
36,737
67,733
98,976
43,174
(11,036)
(8,398)
(6,437)
52,341
(6,981)
184,012
209,883
(25,871)
REIT
(8)
36
(44)
5
97
(92)
Canadian Portfolio (Q4-23)
U.S. Portfolio (Q4-23)
Total Portfolio (Q4-23)
Industrial
27.5%
Industrial
32.0%
Retail/
residential
19.3%
Industrial
30.0%
Retail/
residential
43.9%
Office
28.6%
Office
68.0%
Office
50.7%
Canadian Portfolio (Q4-22)
U.S. Portfolio (Q4-22)
Total Portfolio (Q4-22)
Industrial
25.5%
Industrial
35.9%
Retail
20.2%
Industrial
31.7%
Retail
50.6%
Office
23.9%
Office
64.1%
Net Operating Income by Geographical Region
Office
48.1%
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
U.S.:
Arizona
Colorado
Minnesota
New York
Texas
Wisconsin
Total portfolio
REIT
Three months ended
December 31,
Year ended December
31,
2023
2022
Change
2023
2022
Change
$
7,351 $
8,472 $
(1,121) $
30,899 $
35,517 $
(4,618)
1,521
8,579
637
1,868
1,459
8,089
629
2,265
19,956
20,914
6,747
(146)
8,180
—
3,540
7,083
6,981
2,632
11,231
264
3,565
6,754
62
490
8
(397)
(958)
(234)
(2,778)
(3,051)
(264)
(25)
329
5,827
5,817
34,283
34,189
2,734
8,283
3,303
8,816
10
94
(569)
(533)
82,026
87,642
(5,616)
27,328
1,195
23,928
10,764
3,400
(9,569)
34,345
50,418
(16,073)
—
14,312
24,806
1,668
10,173
25,290
(1,668)
4,139
(484)
25,404
31,427
(6,023)
101,986
122,241
(20,255)
45,360
52,341
(6,981)
184,012
209,883
(25,871)
(8)
36
(44)
5
97
(92)
Net operating income
$
45,352 $
52,377 $
(7,025) $
184,017 $
209,980 $
(25,963)
Net operating income
$
45,352 $
52,377 $
(7,025) $
184,017 $
209,980 $
(25,963)
In Q4-23, the Canadian retail/residential segment and the U.S. industrial segment decreased primarily due to dispositions. The U.S. office segment decreased
primarily due to vacancy at a property that was undergoing redevelopment, which was sold during the quarter.
In Q4-23, Alberta and Minnesota were primarily impacted by dispositions. Colorado decreased primarily due to vacancy at a property that was undergoing
redevelopment that was sold during the quarter.
The U.S. portfolio was also impacted by the effect of foreign exchange.
The U.S. portfolio was also impacted by the effect of foreign exchange.
52 | Artis Real Estate Investment Trust
2023 Annual Report | 53
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Total Portfolio (Q4-23)
Total Portfolio (Q4-22)
WI 15.6%
AB 16.2%
WI 12.9%
TX 7.8%
MN 17.7%
BC 3.4%
MB 18.9%
TX 6.8%
NY 0.5%
MN 21.5%
AB 16.2%
BC 2.8%
MB 15.5%
ON 1.4%
AZ 14.9%
SK 4.1%
Canada
U.S.
44.0%
56.0%
ON 1.2%
SK 4.3%
AZ 13.3%
CO 5.0%
Canada
U.S.
40.0%
60.0%
Three months ended
December 31,
2023
2022
Change
%
Change
Year ended
December 31,
2023
2022
Change
%
Change
Canada:
Industrial
Office
Retail
$
7,548
$
7,338
$
6,237
5,267
5,450
4,687
210
787
580
2.9 % $
29,647
$
29,523
$
14.4 %
12.4 %
27,759
34,760
26,519
34,495
124
1,240
265
0.4 %
4.7 %
0.8 %
Total Canada
19,052
17,475
1,577
9.0 %
92,166
90,537
1,629
1.8 %
U.S.:
Industrial
Office
Total U.S.
5,885
15,124
4,346
14,919
1,539
205
35.4 %
1.4 %
24,362
59,198
19,507
57,256
4,855
1,942
24.9 %
3.4 %
21,009
19,265
1,744
9.1 %
83,560
76,763
6,797
8.9 %
SAME PROPERTY NOI ANALYSIS
Total in functional currency
40,061
36,740
3,321
9.0 %
175,726
167,300
8,426
5.0 %
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.
Foreign exchange
7,603
6,899
704
10.2 %
29,213
23,170
6,043
26.1 %
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 joint venture arrangements. Adjustments are made to this measure to exclude certain non-
cash revenue items and other non-recurring revenue amounts. Lease termination income related to significant tenants has been excluded, other than the portion
that covers lost revenue due to vacancy.
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,
2023
2022
Change
%
Change
Year ended
December 31,
2023
2022
Change
%
Change
Net operating income
$
45,352
$
52,377
$ 184,017
$ 209,980
Add (deduct) net operating income from:
Joint venture arrangements
Dispositions and unconditional dispositions
(Re)development properties
Lease termination income adjustments
Other
Straight-line rent adjustments (1)
Tenant inducements amortized to revenue (1)
3,116
(6,215)
340
(101)
(51)
1,548
(14,943)
227
(374)
76
(2,911)
(13,466)
(699)
5,922
(804)
5,532
11,123
(9,174)
(2,716)
(135)
301
8,886
(40,569)
(6,634)
(1,289)
172
(601)
(39,434)
(2,697)
24,220
(3,045)
22,969
Same Property NOI
$
47,664
$
43,639
$
4,025
9.2 % $ 204,939
$ 190,470
$
14,469
7.6 %
(1) Includes joint venture arrangements.
Same Property NOI by Asset Class
Three months ended
December 31,
2023
2022
Change
%
Change
Year ended
December 31,
2023
2022
Change
% Change
Industrial
Office
Retail
$
15,567
$
13,238
$
26,830
5,267
25,714
4,687
2,329
1,116
580
17.6 % $
62,531
$
54,849
$
4.3 %
107,648
12.4 %
34,760
101,126
34,495
7,682
6,522
265
14.0 %
6.4 %
0.8 %
Same Property NOI
$
47,664
$
43,639
$
4,025
9.2 % $
204,939
$
190,470
$
14,469
7.6 %
Same Property NOI by Asset Class
54 | Artis Real Estate Investment Trust
Same Property NOI
$
47,664
$
43,639
$
4,025
9.2 % $
204,939
$
190,470
$
14,469
7.6 %
Same Property NOI by Geographical Region
Three months ended
December 31,
2023
2022
Change
%
Change
Year ended
December 31,
2023
2022
Change
$
6,703
$
6,473
$
1,766
8,157
—
2,426
5,735
478
6,044
2,976
5,776
1,678
6,869
—
2,455
5,563
662
5,665
1,971
5,404
230
88
1,288
—
(29)
172
(184)
379
1,005
372
3.6 % $
33,503
$
34,158
$
5.2 %
18.8 %
— %
(1.2) %
3.1 %
(27.8) %
6.7 %
51.0 %
6.9 %
6,736
40,082
2,131
9,714
22,835
2,275
25,071
12,010
21,369
6,667
37,878
2,152
9,682
20,395
2,686
22,886
9,223
21,573
(655)
69
2,204
(21)
32
2,440
(411)
2,185
2,787
(204)
%
Change
(1.9) %
1.0 %
5.8 %
(1.0) %
0.3 %
12.0 %
(15.3) %
9.5 %
30.2 %
(0.9) %
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Arizona
Colorado
Minnesota
Texas
Wisconsin
Total in functional currency
40,061
36,740
3,321
9.0 %
175,726
167,300
8,426
5.0 %
Foreign exchange
7,603
6,899
704
10.2 %
29,213
23,170
6,043
26.1 %
Same Property NOI
$
47,664
$
43,639
$
4,025
9.2 % $
204,939
$
190,470
$
14,469
7.6 %
2023 Annual Report | 55
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Same Property Occupancy
As at December 31,
As at December 31,
Geographical Region
2023
2022
Asset Class
Canada:
Alberta
British Columbia
Manitoba
Ontario
Saskatchewan
Total Canada
U.S.:
Arizona
Colorado
Minnesota
Texas
Wisconsin
Total U.S.
Total
Industrial
Office
Retail
Total
86.5 %
92.9 %
90.7 %
100.0 %
96.6 %
90.2 %
94.4 %
66.1 %
88.3 %
100.0 %
81.2 %
90.8 %
90.5 %
87.9 %
92.7 %
90.7 %
100.0 %
99.8 %
90.9 %
95.3 %
72.8 %
79.1 %
98.7 %
83.6 %
89.1 %
89.9 %
2023
97.9 %
84.3 %
87.4 %
2022
94.4 %
85.6 %
89.6 %
90.5 %
89.9 %
INTEREST AND OTHER INCOME
Interest and other income was $32,359 (Q4-23 - $9,052) in 2023, compared to $18,944 (Q4-22 - $5,589) in 2022. The change is primarily due to interest income from
preferred investments in the amount of $29,900 (Q4-23 - $8,219) in 2023, compared to $15,713 (Q4-22 - $4,956) in 2022, which is partially due to additional interest
income in the amount of $7,179 (Q4-23 - $1,966) in 2023 which may or may not be recurring in future quarters. Refer to the Preferred Investments section of this
MD&A for further details.
DISTRIBUTION INCOME FROM EQUITY SECURITIES
Distribution income from equity securities was $12,365 (Q4-23 - $2,501) in 2023, compared to $10,710 (Q4-22 - $4,440) in 2022. Refer to Equity Securities section of
this MD&A for further details.
INTEREST EXPENSE
Three months ended
December 31,
2023
2022
Change
%
Change
Year ended
December 31,
2023
2022
Change
%
Change
Mortgages and other loans (1)
Senior unsecured debentures
Credit facilities (1)
Preferred shares (1)
$
12,313
$
8,239
$
4,074
$
41,453
$
31,250
$
10,203
2,883
14,168
46
5,420
12,859
46
(2,537)
1,309
—
18,515
50,036
184
17,674
33,557
183
841
16,479
1
29,410
26,564
2,846
10.7 %
110,188
82,664
27,524
33.3 %
Foreign exchange
3,406
2,449
957
11,688
6,773
4,915
Total interest expense
$
32,816
$
29,013
$
3,803
13.1 % $ 121,876
$
89,437
$
32,439
36.3 %
(1) Amounts shown are in Canadian and US dollars.
During 2023, interest expense on mortgages and other loans was impacted by new mortgage financing and increased interest expense on mortgages at variable
rates, partially offset by the repayment of mortgages upon disposition of investment properties and the repayment of maturing mortgages. Interest expense on
senior unsecured debentures increased due to the issuance of the Series E senior unsecured debentures on April 29 2022, partially offset by the repayment of the
Series D senior unsecured debentures on September 18, 2023. Interest expense on credit facilities increased primarily due to fluctuations to balances drawn on the
revolving credit facilities and increase 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, 2023, the weighted-average effective interest rate on mortgages and other loans secured by properties, was 6.63%, compared to 4.84% at
December 31, 2022. The weighted-average nominal interest rate on mortgages and other loans secured by properties at December 31, 2023, was 6.17%,
compared to 4.46% at December 31, 2022.
CORPORATE EXPENSES
Three months ended
December 31,
2023
2022
Change
%
Change
Year ended
December 31,
2023
2022
Change
Accounting, legal and consulting
$
Public company costs
Salaries and benefits
Depreciation of property and equipment
General and administrative
630
421
551
311
221
$
427
340
508
312
171
$
203
47.5 % $ 2,022
$ 1,774
$
81
43
(1)
50
23.8 %
967
8.5 %
2,071
(0.3) %
1,226
29.2 %
698
1,116
2,722
1,254
795
248
(149)
(651)
(28)
(97)
%
Change
14.0 %
(13.4) %
(23.9) %
(2.2) %
(12.2) %
Total corporate expenses
$ 2,134
$ 1,758
$
376
21.4 % $ 6,984
$ 7,661
$
(677)
(8.8) %
Corporate expenses in 2023 were $6,984 (Q4-23 - $2,134 ), or 2.1% (Q4-23 - 2.6%) of total revenues compared to $7,661 (Q4-22 - $1,758) or 2.1% (Q4-22 - 1.9%) of
total revenues in 2022.
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 $579 (Q4-23 - loss of $56) in 2023 compared to a fair value gain of $577 (Q4-22 - gain of $100) in 2022.
Salaries and benefits include a fair value gain on unit-based compensation of $854 (Q4-23 - gain of $90) in 2023 compared to a fair value gain of $484 (Q4-22 - gain
of $147) in 2022.
Unit-based compensation was impacted by fluctuations in Artis's unit price during the period.
EQUITY SECURITIES EXPENSES
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 $878 (Q4-23 - $171) in 2023, compared to $1,890 (Q4-22 - $759) in 2022.
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 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 2023, the fair value loss on investment properties was $344,286 (Q4-23 - loss of $119,803), compared to a loss of $178,431 (Q4-22 - loss of
$156,533) in 2022. The fair value loss in 2023 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
Canada:
Industrial
Office
Retail
Residential
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Residential
Total portfolio
Three months ended
December 31, 2023
Year ended December
31, 2023
$
5,199
$
(21,319)
(9,509)
(538)
(26,167)
(23,040)
(70,596)
(93,636)
(17,841)
(91,915)
(9,509)
(538)
(658)
(75,325)
(3,976)
(7,592)
(87,551)
(49,413)
(207,322)
(256,735)
(50,071)
(282,647)
(3,976)
(7,592)
$
(119,803) $
(344,286)
FAIR VALUE (LOSS) GAIN ON FINANCIAL INSTRUMENTS
Artis has entered into a number of interest rate swap contracts to effectively lock the interest rate on a portion of variable rate debt. The REIT recorded an
unrealized loss on the fair value adjustment of the interest rate swaps outstanding of $9,865 (Q4-23 - loss of $6,315) in 2023, compared to an unrealized gain of
$19,525 (Q4-22 - gain of $283) in 2022. The REIT anticipates holding the mortgages and related interest rate swap contracts until maturity.
Additionally, the REIT recorded a fair value loss on equity securities of $31,862 (Q4-23 - gain of $18,227) in 2023, compared to a loss of $41,432 (Q4-22 - gain of
$17,656) in 2022.
56 | Artis Real Estate Investment Trust
2023 Annual Report | 57
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
FOREIGN CURRENCY TRANSLATION GAIN (LOSS)
FFO and AFFO
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 gain (loss) is primarily due to remeasurement of these assets and liabilities into Canadian dollars at the exchange rate in effect at the balance sheet
date. The REIT recorded a foreign currency translation gain of $6,932 (Q4-23 - gain of $3,880) in 2023, compared to a loss of $6,683 (Q4-22 - gain of $1,583) in 2022.
INCOME TAX EXPENSE (RECOVERY)
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.
Income tax expense (recovery) comprised of:
Current income tax expense
Deferred income tax expense (recovery), net
Three months ended
December 31,
Year ended
December 31,
2023
2022
2023
2022
$
77
$
421
$
601
$
2,990
(6,315)
(6,206)
735
13,620
Income tax expense (recovery)
$
3,067
$
(5,894) $
(5,605) $
14,355
The deferred tax recovery recorded in 2023 was primarily due to the REIT's share of net loss of Iris for the year. 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.
OTHER COMPREHENSIVE (LOSS) GAIN
Other comprehensive (loss) gain includes unrealized foreign currency translation losses of $29,897 (Q4-23 - losses of $25,770) in 2023, compared to gains of
$110,831 (Q4-22 - losses of $19,358) in 2022. Foreign currency translation gains and losses relate to the REIT's net investments in its U.S. subsidiaries.
000's, except per unit amounts
2023
2022
Change
Three months ended
December 31,
%
Change
Year ended
December 31,
2023
2022
Change
%
Change
$
(86,837) $ (128,301)
$ (332,068) $
(5,294)
Net loss
Add (deduct):
Tenant inducements amortized to revenue
Incremental leasing costs
Distributions on preferred shares treated as
interest expense
Remeasurement component of unit-based
compensation
Strategic review expenses
6,177
456
63
(34)
28
6,301
368
63
(435)
—
Adjustments for equity accounted investments
4,381
29,211
Fair value loss on investment properties
119,803
156,533
Fair value (gain) loss on financial instruments
(12,201)
(18,075)
Foreign currency translation (gain) loss
Deferred income tax expense (recovery)
Preferred unit distributions
(3,880)
2,990
(3,671)
(1,583)
(6,315)
(3,077)
24,595
2,274
25,405
2,695
249
240
(1,433)
207
(1,725)
—
66,862
(62,140)
344,286
178,431
41,730
(6,932)
(6,206)
21,130
6,683
13,620
(13,025)
(15,856)
FFO
Add (deduct):
$
27,275
$
34,690 $
(7,415)
(21.4) % $ 120,539
$ 163,189
$
(42,650)
(26.1) %
Amortization of recoverable capital
expenditures
Straight-line rent adjustments
Non-recoverable property maintenance
reserve
Leasing costs reserve
Adjustments for equity accounted investments
$
(1,985) $
(2,393)
(509)
(424)
(400)
(7,500)
(1,463)
(850)
(7,900)
(1,816)
$
(7,403) $
(8,180)
(2,554)
(1,379)
(2,200)
(4,150)
(30,400)
(31,900)
(7,984)
(6,630)
FUNDS FROM OPERATIONS ("FFO") AND ADJUSTED FUNDS FROM OPERATIONS ("AFFO")
AFFO
$
15,418
$
21,307 $
(5,889)
(27.6) % $
69,998
$ 110,950
$
(40,952)
(36.9) %
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 in accordance with the guidelines set out by the Real Property Association of Canada ("REALpac"), as issued in January 2022,
except for the add-back of strategic review expenses in the amount of $207 (Q4-23 - $28) in 2023. Although the add-back of these expenses to arrive at FFO and
AFFO is not in accordance with the guidelines set out by REALpac, management believes it provides a better representation of recurring FFO and AFFO. 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. FFO and AFFO
include adjustments related to the REIT's equity accounted investments.
Prior to June 30, 2023, the REIT adjusted FFO and AFFO for the impact of realized gain (loss) on equity securities. Effective June 30, 2023, the REIT calculates FFO
and AFFO excluding the impact of realized gain (loss) on equity securities. The REIT presents the calculation including the impact of these transactions separately
for information purposes. Refer to FFO and AFFO, Adjusted for Impact of Realized Loss on Equity Securities section of this MD&A on the following page.
FFO in 2023 was primarily impacted by decreased net operating income as a result of dispositions completed in 2022 and 2023 and increased interest expense,
partially offset by an increase to other income due to the preferred investment as part of the Cominar Transaction.
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 67.7% (Q4-23 - 66.9%) is recoverable from tenants in 2023,
compared to 71.7% (Q4-22 - 66.8%) in 2022. The non-recoverable property maintenance reserve reflects management's estimate of a normalized expenditure
using the 2020, 2021, 2022 and 2023 actual expenditures and the 2024 annual budgeted expenditures, adjusted for the impact of dispositions. 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, 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, Adjusted for Impact of Realized Gain (Loss) on Equity Securities
The REIT also calculates FFO and AFFO, adjusted for the impact of realized gain (loss) on equity securities. Although these adjustments are not in accordance with
the guidelines set out by REALpac as issued in January 2022, management believes the resulting FFO and AFFO provide relevant information. Realized gain (loss)
on equity securities is a result of equity security disposition activity and may not recur in future quarters.
58 | Artis Real Estate Investment Trust
2023 Annual Report | 59
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
000's, except per unit amounts
2023
2022
Change
Three months ended
December 31,
%
Change
Year ended
December 31,
2023
2022
Change
%
Change
FFO
Add (deduct):
$
27,275
$
34,690
$ 120,539
$ 163,189
Realized gain (loss) on equity securities
—
740
(20,683)
1,602
FFO, adjusted for impact of realized gain (loss) on
equity securities
$
27,275
$
35,430 $
(8,155)
(23.0) % $
99,856
$ 164,791
$
(64,935)
(39.4) %
AFFO
Add (deduct):
$
15,418
$
21,307
$
69,998
$ 110,950
Realized (loss) gain on equity securities
—
740
(20,683)
1,602
FFO and AFFO per Unit, Adjusted for Impact of Realized Gain (Loss) on Equity Securities
Three months ended
December 31,
2023
2022
Change
%
Change
Year ended
December 31,
2023
2022
Change
%
Change
FFO, adjusted for impact of realized gain (loss)
on equity securities per unit:
Basic
Diluted
$
0.25 $
0.31 $
0.25
0.30
AFFO, adjusted for impact of realized gain
(loss) on equity securities per unit:
Basic
Diluted
$
0.14 $
0.19 $
0.14
0.19
(0.06)
(0.05)
(0.05)
(0.05)
(19.4) % $
0.90 $
1.40 $
(16.7) %
0.89
1.39
(0.50)
(0.50)
(35.7) %
(36.0) %
(26.3) % $
0.44 $
0.95 $
(26.3) %
0.44
0.95
(0.51)
(0.51)
(53.7) %
(53.7) %
AFFO, adjusted for impact of realized gain (loss) on
equity securities
$
15,418
$
22,047 $
(6,629)
(30.1) % $
49,315
$ 112,552
$
(63,237)
(56.2) %
FFO and AFFO Payout Ratios
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 for FFO and AFFO purposes:
Basic units
Add:
Restricted units
Deferred units
Diluted units
FFO and AFFO per Unit
FFO per unit:
Basic
Diluted
AFFO per unit:
Basic
Diluted
Three months ended
December 31,
Year ended
December 31,
2023
2022
2023
2022
107,947,620
115,781,374
111,294,362
117,932,876
443,082
322,874
399,997
202,914
402,558
281,001
356,076
180,635
108,713,576
116,384,285
111,977,921
118,469,587
Three months ended
December 31,
2023
2022
Change
%
Change
Year ended
December 31,
2023
2022
Change
%
Change
$
0.25 $
0.30 $
0.25
0.30
$
0.14 $
0.18 $
0.14
0.18
(0.05)
(0.05)
(0.04)
(0.04)
(16.7) % $
1.08 $
1.38 $
(16.7) %
1.08
1.38
(0.30)
(0.30)
(21.7) %
(21.7) %
(22.2) % $
0.63 $
0.94 $
(22.2) %
0.63
0.94
(0.31)
(0.31)
(33.0) %
(33.0) %
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.
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 - diluted
FFO payout ratio
Distributions per common unit (1)
AFFO per unit - diluted
Three months ended
December 31,
2023
2022
%
Change
Year ended
December 31,
2023
2022
%
Change
$
0.15
0.25
0.15
0.30
$
$
0.60
1.08
0.60
1.38
60.0 %
50.0 %
10.0 %
55.6 %
43.5 %
12.1 %
$
0.15
0.14
0.15
0.18
$
$
0.60
0.63
0.60
0.94
$
$
AFFO payout ratio
107.1 %
83.3 %
23.8 %
95.2 %
63.8 %
31.4 %
(1) Excludes the Special Distribution declared in December 2021 and December 2022.
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
December 31,
2023
December 31,
2022
$
2,494,134 $
3,156,206
947
571,760
191,552
335,813
$
3,066,841 $
3,683,571
60 | Artis Real Estate Investment Trust
2023 Annual Report | 61
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
The change in total investment properties is a result of the following:
Capital Expenditures by Asset Class
Balance, December 31, 2022
Additions:
Capital expenditures
Investment properties
Investment properties under development
Capitalized interest (1)
Leasing commissions
Straight-line rent adjustments
Tenant inducement additions, net of amortization
Dispositions
Foreign currency translation loss
Fair value loss
Balance, December 31, 2023
$
3,683,571
25,199
26,870
2,770
7,128
2,554
12,978
(310,921)
(39,022)
(344,286)
$
3,066,841
(1) During 2023, interest was capitalized to investment properties under development at a weighted-average effective interest rate of 6.87%
Capital Expenditures by Type
Building improvements are capital expenditures that increase the long-term value or revenue generating potential of the property. These expenditures include
costs to modernize or upgrade existing properties. Property maintenance costs are capital expenditures to repair or replace components of existing properties
such as roofs, HVAC units and parking lots.
Three months ended
December 31,
2023
2022
Change
%
Change
Year ended
December 31,
2023
2022
Change
%
Change
New and (re)development expenditures
$
2,086
$
8,372
$
(6,286)
$
26,870
$
60,340
$
(33,470)
Building improvements expenditures:
Recoverable from tenants
Non-recoverable
Property maintenance expenditures:
Recoverable from tenants
Non-recoverable
1,698
2,999
1,265
780
419
4,020
1,279
(1,021)
2,405
16,888
1,704
15,805
701
1,083
1,477
544
(212)
236
4,180
1,726
5,821
3,292
(1,641)
(1,566)
Total capital expenditures
$
8,828
$
14,832
$
(6,004)
(40.5) % $
52,069
$
86,962
$
(34,893)
(40.1) %
Canada:
Industrial
Office
Retail
Residential
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Residential
Total portfolio
Three months ended
December 31,
%
Year ended
December 31,
%
2023
2022
Change
Change
2023
2022
Change
Change
$
51
$
104
$
(53)
$
809
$
623
$
1,902
1,231
1,575
4,759
(1,319)
5,388
4,069
(1,268)
7,290
1,231
1,575
2,663
293
4,851
7,911
1,950
4,971
6,921
2,054
7,634
293
4,851
(761)
938
(3,276)
(3,152)
(3,269)
417
(2,852)
(3,322)
(344)
938
(3,276)
9,243
1,548
17,940
29,540
2,090
20,439
22,529
2,899
29,682
1,548
17,940
7,439
1,194
32,226
41,482
29,861
15,619
45,480
30,484
23,058
1,194
32,226
186
1,804
354
(14,286)
(11,942)
(27,771)
4,820
(22,951)
(27,585)
6,624
354
(14,286)
$
8,828
$
14,832
$
(6,004)
(40.5) % $
52,069
$
86,962
$
(34,893)
(40.1) %
In 2023, new and (re)development expenditures included $17,940 for 300 Main.
In 2022, new and (re)development expenditures included $32,226 for 300 Main, and $27,918 for Blaine 35 I and Blaine 35 II.
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.
Investment property leasing costs:
Tenant inducements
Leasing commissions
Investment property (re)development related
leasing costs:
Tenant inducements
Leasing commissions
Three months ended
December 31,
2023
2022
Change
%
Change
Year ended
December 31,
2023
2022
Change
%
Change
$
7,171
$
6,816
$
355
$
35,331
$
34,421
$
910
1,042
2,578
(1,536)
5,277
11,552
(6,275)
671
547
1,210
304
(539)
243
1,938
1,851
2,124
503
(186)
1,348
Total leasing costs
$
9,431
$
10,908
$
(1,477)
(13.5) % $
44,397
$
48,600
$
(4,203)
(8.6) %
62 | Artis Real Estate Investment Trust
2023 Annual Report | 63
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Leasing Costs by Asset Class
Capitalization Rates
Canada:
Industrial
Office
Retail
Residential
U.S.:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Residential
Three months ended
December 31,
2023
2022
Change
%
Change
Year ended
December 31,
2023
2022
Change
%
Change
$
$
116
520
791
(248)
1,179
1,939
6,313
8,252
2,055
6,833
791
(248)
525
366
352
—
1,243
3,217
6,448
9,665
3,742
6,814
352
—
$
(409)
$
3,199
$
2,463
$
154
439
(248)
(64)
(1,278)
(135)
(1,413)
(1,687)
19
439
(248)
1,471
3,095
(248)
7,517
6,945
29,935
36,880
10,144
31,406
3,095
(248)
1,802
3,183
448
7,896
9,381
31,323
40,704
11,844
33,125
3,183
448
736
(331)
(88)
(696)
(379)
(2,436)
(1,388)
(3,824)
(1,700)
(1,719)
(88)
(696)
Total leasing costs
$
9,431
$
10,908
$
(1,477)
(13.5) % $
44,397
$
48,600
$
(4,203)
(8.6) %
In 2023, leasing costs included $8,704 for three office tenants in the Greater Phoenix Area, Arizona. Leasing costs related to new and (re)developments included
$3,649 for three industrial tenants in the Twin Cities Area, Minnesota.
Dispositions
During 2023, Artis sold nine industrial properties, five retail properties, three office properties and a parcel of development land for an aggregate sale price of
$322,431. The sale proceeds, net of costs of $11,284, related debt of $75,512 and the issuance of a note receivable of $13,619 were $222,016.
Completed new developments
During 2023, Artis completed the development of Blaine 35 II, comprised of two industrial buildings totalling 198,900 square feet, located in the Twin Cities Area,
Minnesota and 300 Main, a commercial/residential property located in Winnipeg, Manitoba. Refer to the Portfolio Summary section for further details.
Investment properties held for sale
At December 31, 2023, the REIT had 16 retail properties, seven office properties, one industrial property, one parking lot and one parcel of development land
located in Canada and three office properties and one industrial property located in the U.S. with an aggregate fair value of $571,760, classified as held for sale.
These properties were actively marketed for sale or under unconditional or conditional sale agreements at December 31, 2023.
December 31, 2023
December 31, 2022
Maximum
Minimum
Weighted-
average
Maximum
Minimum
Weighted-
average
Industrial:
Canadian industrial portfolio
U.S. industrial portfolio
9.00 %
8.00 %
4.25 %
5.50 %
6.48 %
6.16 %
8.50 %
7.75 %
3.75 %
5.00 %
6.23 %
5.49 %
Total industrial portfolio
9.00 %
4.25 %
6.32 %
8.50 %
3.75 %
5.81 %
Office:
Canadian office portfolio
U.S. office portfolio
Total office portfolio
Retail:
Canadian retail portfolio
Total retail portfolio
Residential:
Canadian residential portfolio
Total residential portfolio
Total:
Canadian portfolio
U.S. portfolio
Total portfolio
Preferred Investments
8.75 %
9.00 %
9.00 %
8.75 %
8.75 %
4.50 %
4.50 %
9.00 %
9.00 %
9.00 %
5.00 %
7.25 %
5.00 %
6.00 %
6.00 %
4.50 %
4.50 %
4.25 %
5.50 %
4.25 %
6.72 %
8.21 %
7.67 %
6.96 %
6.96 %
4.50 %
4.50 %
6.46 %
7.49 %
6.89 %
8.25 %
8.25 %
8.25 %
8.75 %
8.75 %
4.50 %
4.50 %
8.75 %
8.25 %
8.75 %
4.25 %
6.25 %
4.25 %
6.00 %
6.00 %
4.50 %
4.50 %
3.75 %
5.00 %
3.75 %
6.21 %
7.35 %
6.94 %
6.65 %
6.65 %
4.50 %
4.50 %
6.20 %
6.66 %
6.40 %
At December 31, 2023, the REIT had preferred investments of $144,084, compared to $114,184 at December 31, 2022. The change is due to junior preferred units
received in-kind for interest income in the amount of $29,900.
The junior preferred units 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.
Foreign currency translation loss on investment properties
Equity Securities
In 2023, the foreign currency translation loss on investment properties was $39,022 due to the change in the period end US dollar to Canadian dollar exchange
rate from 1.3544 at December 31, 2022 to 1.3226 at December 31, 2023.
Fair value loss on investment properties
During 2023, the REIT recorded a loss on the fair value of investment properties of $344,286 (Q4-23 - loss of $119,803), compared to a loss of $178,431 (Q4-22 - loss
of $156,533) in 2022. The fair value loss in 2023 was primarily due to rising interest rates exerting upward pressure on capitalization rates in markets across both
Canada and the U.S.
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 4.25% to 9.00%.
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.
At December 31, 2023, the REIT had investments in equity securities of $152,002, compared to $316,768 at December 31, 2022.
The change in equity securities is a result of the following:
Balance, December 31, 2022
Purchases
Dispositions
Fair value loss
Balance, December 31, 2023
$
316,768
1,125
(134,029)
(31,862)
$
152,002
64 | Artis Real Estate Investment Trust
2023 Annual Report | 65
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Notes Receivable
Mortgages and Loans Payable by Asset Class
On November 17, 2023, the REIT disposed of an office property and received as partial consideration a note receivable in the amount of US$11,500. The REIT
receives quarterly interest-only payments at an effective rate of 8.967% per annum. The note receivable is secured by the office property and matures in
November 2028.
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. This note
receivable was repaid subsequent to year end.
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, 2023 was $47,170, compared to $38,695 at December 31, 2022.
Accounts Receivable
At December 31, 2023, Artis had accounts receivable outstanding as follows:
Rents receivable
Deferred rents receivable
Allowance for doubtful accounts
Accrued recovery income
Other receivables
Cash
December 31,
December 31,
2023
$
5,017
$
194
(2,102)
3,141
9,710
2022
5,229
238
(2,187)
3,470
10,557
$
15,960
$
17,307
At December 31, 2023, the REIT had $28,940 of cash on hand, compared to $29,168 at December 31, 2022. The balance is anticipated to be invested in
investment properties, used for working capital purposes, debt repayment or other activities in accordance with the REIT's strategy. 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, 2023 was 2.1 years, increased from 1.6 years at December 31, 2022.
At December 31, 2023, Artis had mortgages and loans payable outstanding, as follows:
Canada
U.S.
Total Portfolio
December 31,
2023
December 31,
2022
December 31,
2023
December 31,
2022
December 31,
2023
December 31,
2022
Fixed rate mortgages
$
220,218 $
285,848 $
46,548 $
48,750
$
266,766 $
Variable rate mortgages (swapped)
Variable rate mortgages
Net above- and below-market
mortgage adjustments
Financing costs
203,414
14,160
—
(3,230)
25,575
4,097
—
(1,476)
43,483
388,498
—
(1,343)
191,561
310,905
782
(1,344)
246,897
402,658
—
(4,573)
334,598
217,136
315,002
782
(2,820)
$
434,562 $
314,044 $
477,186 $
550,654
$
911,748 $
864,698
At December 31, 2023, variable rate mortgage debt (excluding swapped mortgages) as a percentage of total debt, including credit facilities and debentures was
21.1%, compared to 14.2% at December 31, 2022. 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 over the long term, 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.
Canadian portfolio:
Industrial
Office
Retail
Residential
U.S. portfolio:
Industrial
Office
Total portfolio:
Industrial
Office
Retail
Residential
Total portfolio
December 31,
2023
December 31,
2022
$
61,740 $
53,599
142,539
179,914
437,792
156,513
322,016
478,529
218,253
375,615
142,539
179,914
52,618
51,041
211,861
—
315,520
162,900
388,316
551,216
215,518
439,357
211,861
—
$
916,321 $
866,736
During 2023, Artis obtained an interest-only construction loan which encumbers a residential property, a retail property and a parkade located in Winnipeg,
Manitoba for a three-year term.
The change in total mortgages and loans payable is a result of the following:
Balance, December 31, 2022
Add (deduct):
Draws on construction loans
New fixed rate mortgages
New variable rate mortgage
New swapped rate mortgage
Uplift on fixed rate mortgages
Uplift on variable rate mortgage
Repayment of fixed rate mortgages
Repayment of swapped rate mortgages
Repayment of variable rate mortgages
Repayment of fixed rate mortgages upon disposition of investment properties
Repayment of variable mortgage upon disposition of investment property
Principal repayments
Foreign currency translation gain
Balance, December 31, 2023
Senior Unsecured Debentures
$
866,736
188,898
51,250
50,017
23,500
9,997
6,759
(62,857)
(19,697)
(92,532)
(55,796)
(19,717)
(18,049)
(12,188)
$
916,321
Artis has one series of senior unsecured debentures outstanding, as follows:
Issued
Maturity
Interest rate
December 31, 2023
December 31, 2022
Carrying
value
Face
value
Carrying
value
Face
value
Series D
Series E
September 18, 2020
September 18, 2023
3.824 %
$
— $
—
$
249,723 $
250,000
April 29, 2022
April 29, 2025
5.600 %
199,630
200,000
199,368
200,000
$
199,630 $
200,000
$
449,091 $
450,000
At December 31, 2023, the carrying value of the senior unsecured debentures decreased $249,461 compared to December 31, 2022. The change is primarily due
to the repayment of the Series D senior unsecured debentures on September 18, 2023.
66 | Artis Real Estate Investment Trust
2023 Annual Report | 67
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Credit Facilities
Revolving Credit Facilities
The revolving credit facilities are comprised of two tranches and the REIT can draw on the revolving credit facilities in Canadian or US dollars.
The first tranche of the revolving credit facilities in the amount of $400,000 matures on December 14, 2024. On February 28, 2023, the revolving term credit
facilities agreement was amended to reduce the second tranche of the facilities from $300,000 to $280,000 and extend the maturity date to April 29, 2025. The
interest rate on US dollar term advances for all revolving credit facilities was amended to adjusted SOFR plus 1.70%, in place of the previous LIBOR plus 1.70%
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 on June 28, 2024.
At December 31, 2023, there was $544,681 drawn on the revolving credit facilities (December 31, 2022, $601,934).
Non-Revolving Credit Facilities
The REIT has unsecured non-revolving credit facilities, as outlined in the table below.
Non-revolving facility maturing April 3, 2023
Non-revolving facility maturing February 6, 2024
Non-revolving facility maturing July 18, 2024
(1) The applicable interest rate is banker's acceptance rate plus 1.70% or prime rate plus 0.70%.
Interest Rate
Variable (1)
Variable (1)
Variable (1)
December 31,
2023
December 31,
2022
$
$
—
$
100,000
150,000
50,000
100,000
150,000
250,000
$
300,000
At December 31, 2023, there was $250,000 drawn on the non-revolving credit facilities (December 31, 2022, $300,000). The change is due to the $50,000 repayment
of the non-revolving facility that matured on April 3, 2023.
On January 31, 2023, the REIT entered into an amending agreement to extend the maturity date of the $100,000 non-revolving credit facility to February 6, 2024.
On February 28, 2023, the REIT entered into another amended agreement to extend the maturity date of the $150,000 non-revolving credit facility to July 18, 2024
and to provide for CORRA as the Canadian benchmark replacement rate on all Canadian dollar term advances when the publication of CDOR ceases on June 28,
2024.
Subsequent to December 31, 2023, the REIT entered into an amended agreement to extend the maturity date of the $100,000 non-revolving credit facility to
February 6, 2026, at an interest rate of adjusted CORRA plus 1.70% or prime plus 0.70%.
Accounts Payable & Other Liabilities
Included in accounts payable and other liabilities was accrued distributions payable to unitholders of $6,928, which were paid subsequent to December 31, 2023.
UNITHOLDERS' EQUITY
Unitholders' equity decreased overall by $512,827 between December 31, 2022 and December 31, 2023. The overall decrease was primarily due to net loss of
$332,068, distributions made to unitholders of $83,859, other comprehensive loss of $32,331, $113,456 of common units and $14,119 of preferred units purchased
through the NCIB, partially offset by contributed surplus of $62,893, and the issuance of common units of $113.
OTHER FINANCIAL MEASURES
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.
Unitholders' equity decreased primarily due to net loss resulting from the non-cash impact of fair value losses on investment properties for the period, units
purchased under the NCIB, distributions made to unitholders, and the foreign exchange loss recorded in other comprehensive loss. The total number of dilutive
units outstanding has decreased primarily due to units purchased under the NCIB.
Secured Mortgages and Loans to GBV
Secured mortgages and loans to GBV is a non-GAAP measure. Artis calculates GBV based on the total consolidated assets of the REIT, adding back the amount
of accumulated depreciation of property and equipment. Artis calculates secured mortgages and loans to GBV by 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.
Total assets
Add: accumulated depreciation
Gross book value
Secured mortgages and loans
Secured mortgages and loans to GBV
Total Debt to GBV
December 31,
2023
December 31,
2022
$
3,735,030
$
4,553,913
11,786
10,585
3,746,816
4,564,498
$
911,748
$
864,698
24.3 %
18.9 %
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,
2023
December 31,
2022
$
3,735,030
$
4,553,913
11,786
10,585
3,746,816
4,564,498
911,748
928
199,630
794,164
864,698
950
449,091
901,159
$
1,906,470
$
2,215,898
50.9 %
48.5 %
NAV per Unit
Unencumbered Assets to Unsecured Debt
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.
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.
000's, except unit and per unit amounts
December 31,
2023
December 31,
2022
Change
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.
Unitholders' equity
$
1,716,332 $
2,229,159 $
(512,827)
Less face value of preferred equity
(197,951)
(212,547)
14,596
NAV attributable to common unitholders
$
1,518,381 $
2,016,612 $
(498,231)
Total number of diluted units outstanding:
Common units
Restricted units
Deferred units
107,950,866
115,409,234
(7,458,368)
477,077
323,224
440,617
203,430
36,460
119,794
108,751,167
116,053,281
(7,302,114)
NAV per unit
$
13.96 $
17.38 $
(3.42)
68 | Artis Real Estate Investment Trust
Unencumbered assets
Unencumbered investment properties held under joint venture arrangements
Total unencumbered assets
Senior unsecured debentures
Unsecured credit facilities
Total unsecured debt
Unencumbered assets to unsecured debt
December 31,
2023
December 31,
2022
$
1,567,001 $
2,034,409
47,243
50,557
1,614,244
2,084,966
199,630
794,164
449,091
901,159
$
993,794 $
1,350,250
1.62
1.54
2023 Annual Report | 69
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
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. 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.
Management considers this ratio to be a valuable measure of Artis's ability to service the interest requirements on its outstanding debt.
Net loss
Add (deduct):
Tenant inducements amortized to revenue
Straight-line rent adjustments
Depreciation of property and equipment
Net loss (income) from equity accounted investments
Distributions from equity accounted investments
Interest expense
Strategic review expenses
Fair value loss on investment properties
Fair value (gain) loss on financial instruments
Foreign currency translation (gain) loss
Income tax expense (recovery)
Adjusted EBITDA
Interest expense
Add (deduct):
Three months ended
December 31,
Year ended
December 31,
2023
2022
2023
2022
$
(86,837) $
(128,301) $
(332,068) $
(5,294)
6,177
(509)
311
1,804
1,373
32,816
28
119,803
(12,201)
(3,880)
3,067
6,301
(424)
312
28,196
734
29,013
—
156,533
(18,075)
(1,583)
(5,894)
24,595
(2,554)
1,226
57,385
4,346
121,876
207
344,286
41,730
(6,932)
(5,605)
25,405
(1,379)
1,254
(74,659)
4,166
89,437
—
178,431
21,130
6,683
14,355
61,952
66,812
248,492
259,529
32,816
29,013
121,876
89,437
EQUITY ACCOUNTED INVESTMENTS
INVESTMENT PROPERTIES
The REIT has interests in the following investment properties held in equity accounted investments:
Property
Park 8Ninety V
Corridor Park (1)
Graham Portfolio
Investment
Type
Property
Count
Location
Joint venture
Joint venture
Joint venture
1
—
8
1
1
Greater Houston Area, TX
Greater Houston Area, TX
Various Cities, AB/BC/SK
Greater Denver Area, CO
Greater Phoenix Area, AZ
The Point at Inverness
Joint venture
Park Lucero East
Associate
(1) Corridor Park is a parcel of development land.
Asset Class
Industrial
Office
Industrial
Office
Industrial
Owned
Share of
GLA
640,467
—
243,109
95,199
56,100
Ownership Interest
December 31,
2023
December 31,
2022
95 %
90 %
75 %
50 %
10 %
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. Subsequent to December 31, 2023, Artis acquired the remaining 5%
of Park 8Ninety V and now owns 100% of the property.
During 2023, Artis completed the development of Park Lucero East, an industrial property located in the Greater Phoenix Area, Arizona, comprising 561,000
square feet. Artis has a 10% ownership interest in this property.
Financial and Operating Results
Net Operating Income
Revenue
Total operating expenses
Net operating income
Three months ended
December 31,
Year ended December
31,
2023
2022
2023
2022
$
$
$
5,600
2,271
$
3,363
1,828
$
19,160
7,656
16,262
7,394
3,329
$
1,535
$
11,504
$
8,868
Amortization of financing costs
Amortization of above- and below-market mortgages, net
(797)
84
(787)
234
(3,401)
778
(3,177)
896
Below is a breakdown of Q4-23 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:
Adjusted interest expense
$
32,103
$
28,460
$
119,253
$
87,156
Adjusted EBITDA interest coverage ratio
1.93
2.35
2.08
2.98
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
December 31,
2023
December 31,
2022
$
911,748 $
864,698
928
199,630
794,164
950
449,091
901,159
1,906,470
2,215,898
61,952
247,808
66,812
267,248
7.7
8.3
Geographical Region
Asset Class
Office 8.6%
TX 41.4%
AB 25.6%
BC 3.9%
SK 11.2%
CO 10.4%
AZ 7.5%
Industrial 91.4%
Canada
U.S.
40.7%
59.3%
Fair Value (Loss) Gain on Investment Properties
In 2023, the fair value loss on investment properties was $9,816 (Q4-23 - loss of $22,453), compared to a gain of $30,373 (Q4-22 - loss of $6,036) in 2022. The fair
value loss in 2023 was primarily due to rising interest rates exerting upward pressure on capitalization rates in markets across both Canada and the U.S.
Other Expenses and Income, Net
In 2023, the net amount of other expenses and income, was $4,560 (Q4-23 - $1,236), compared to $3,886 (Q4-22 - $888) in 2022.
70 | Artis Real Estate Investment Trust
2023 Annual Report | 71
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
Financial Position
Investment properties held in equity accounted investments at the REIT's ownership interest consists of the following:
The change in other investments held in equity accounted investments is a result of the following:
Investment properties
Investment properties under development
Investment properties held for sale
Total
The change in total investment properties held in equity accounted investments is a result of the following:
December 31,
2023
December 31,
2022
$
$
240,109
$
—
—
212,794
12,452
19,303
240,109
$
244,549
Balance, December 31, 2022
Net loss from Iris Acquisition II LP
Other comprehensive loss from Iris Acquisition II LP
Net income from ICE II LP
Distributions from ICE II LP
Balance, December 31, 2023
LIQUIDITY AND CAPITAL RESOURCES
$
147,013
(55,484)
(2,434)
972
(738)
$
89,329
$
244,549
DISTRIBUTIONS
Cash flow from operations represents the primary source of funds for distributions to unitholders and principal repayments on mortgages and loans.
Balance, December 31, 2022
Additions:
Capital expenditures
Leasing commissions
Straight-line rent adjustments
Tenant inducement additions, net of amortization
Foreign currency translation loss
Fair value loss
Balance, December 31, 2023
711
5,240
1,229
1,601
(3,405)
(9,816)
$
240,109
Fixed rate mortgage
Variable rate mortgages
Financing costs
December 31,
2023
December 31,
2022
$
$
28,097 $
42,942
(87)
29,312
35,406
(345)
70,952 $
64,373
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,
2023
2023
2022
2021
Cash flow from operations
Net (loss) income
$
7,248
$
79,962
$
140,744 $
(86,837)
(332,068)
(5,294)
19,863
—
19,863
79,458
—
79,458
86,228
9,234
95,462
(12,615)
(106,700)
504
(411,526)
45,282
(100,756)
199,499
389,175
76,250
39,589
115,839
83,660
273,336
(Shortfall) excess of cash flow from operations over distributions
paid and payable
(Shortfall) excess of net income over distributions paid and payable
Artis's primary objective is to provide tax-efficient monthly cash distributions.
The shortfall of cash flow from operations over distributions paid and payable for the three months ended December 31, 2023 was primarily due to timing of
changes to non-cash operating items.
At December 31, 2023, mortgages and loans payable at the REIT's ownership interest in investment properties held in equity accounted investments were as
follows:
Monthly and quarterly distributions paid and payable
Special Distribution payable in cash
The weighted-average term to maturity on mortgages and loans payable at the REIT's ownership interest in equity accounted investments was 0.8 years at
December 31, 2023, compared to 1.9 years at December 31, 2022.
The shortfall of net income over distributions declared for the three months ended December 31, 2023, year ended December 31, 2023 and year ended December
31, 2022 was primarily due to the non-cash impact of the fair value losses on investment properties and financial instruments.
OTHER INVESTMENTS
The REIT has interests in the following other investments held in equity accounted investments:
Ownership Interest
Investment
Investment Type
Purpose
December 31, 2023 December 31, 2022
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 %
50.00 %
50.00 %
32.64 %
In 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 has an investment in junior preferred units of Iris in the initial amount of $100,000. Refer to Preferred Investments section of this MD&A for
further details.
CAPITAL RESOURCES
At December 31, 2023, Artis had $28,940 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 REIT's business strategy.
The REIT has two unsecured revolving term credit facilities in the aggregate amount of $680,000, 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, 2023, the REIT had $135,319 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, 2023, the total borrowing capacity of the revolving credit facilities was not limited by this
covenant (December 31, 2022, not limited).
At December 31, 2023, the REIT had 85 unencumbered properties and two unencumbered parcels of development land, representing a fair value of $1,567,001.
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, 2023.
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.
72 | Artis Real Estate Investment Trust
2023 Annual Report | 73
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
$
84,334 $
84,334 $
— $
— $
Lease liabilities
Credit facilities
Senior unsecured debentures
Mortgages and loans payable
916
794,681
200,000
916,321
232
588,873
—
275,348
290
205,808
200,000
497,404
310
—
—
115,079
28,490
—
84
—
—
Total contractual obligations
$
1,996,252 $
948,787 $
903,502 $
115,389 $
28,574
As at December 31, 2023, the REIT had extension options for mortgages maturing in 2024 in the amount of $130,506.
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
2024
2025
2026
2027
2028
2029 & later
Total
$
261,425
237,013
246,995
—
107,579
25,275
29.8 % $
13,923 $
27.0 %
28.1 %
— %
12.2 %
2.9 %
8,651
4,745
4,437
3,063
3,215
275,348
245,664
251,740
4,437
110,642
28,490
$
878,287
100.0 % $
38,034 $
916,321
6.44 %
7.53 %
5.15 %
— %
5.92 %
3.13 %
6.21 %
RISKS AND UNCERTAINTIES
A summary of all risks applicable to the REIT are set forth in Artis's 2023 Annual Information Form. The REIT discusses specific risk factors below.
STRATEGY
Failure to Execute the Strategy
Pursuant to the strategy, 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 strategy, 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.
Acquisitions, Divestitures and Strategic Initiatives
Pursuant to the strategy, 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.
Control or Significant Influence Risk & Minority Investments
Although Artis may endeavour to make investments that allow it to acquire control or exercise significant influence over management and the strategic direction of
its portfolio entities, there can be no assurance that all investments will provide Artis with such a degree of influence or control. In addition, the exercise of control
over a portfolio company imposes additional risks of liability for failure to supervise management. The exercise of control over an investment could expose the
assets of Artis to claims by such businesses, its shareholders and its creditors. While Artis intends to manage its investments in a manner that will minimize the
exposure to these risks, the possibility of successful claims cannot be precluded. On occasion, Artis expects that it may also make minority equity investments in
businesses in which Artis does not participate in the management or otherwise control the business or affairs of such businesses. While Artis will monitor the
performance of each investment and maintain an ongoing dialogue with each business management team, it will be the responsibility of the management of the
business to operate the business on a day-to-day basis and Artis may not have the right or ability to control or otherwise influence such business. Accordingly,
these companies may undertake activities which Artis does not believe is in their best interests.
Competitive Market for Investment Opportunities
In accordance with the overall strategy 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 strategy.
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 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.
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 value of real property and any improvements thereto may also
depend on the credit and financial stability of the tenants and upon vacancy rates of Artis’s portfolio of income-producing properties. Artis’s financial performance
would be adversely affected if a significant number of tenants were to become unable to meet their obligations under their leases. Upon the expiry of any lease,
there can be no assurance that the lease will be renewed on favourable terms to Artis or at all and no guarantee that the tenant can be replaced. The terms of any
subsequent leases may be less favourable to Artis than the existing leases. In the event of default by a tenant, delays or limitations in enforcing rights as lessor may
be experienced and substantial costs may be incurred by Artis. Furthermore, at any time, a tenant of any of Artis’s property or properties may seek the protection
of bankruptcy, insolvency or similar laws that could result in the rejection and termination of such tenant’s lease and thereby adversely affect the financial
performance of Artis.
Certain expenditures, including property taxes, maintenance costs, mortgage payments, insurance costs and related charges must be made throughout the
period of ownership of real property regardless of whether the real property is producing any income. If Artis is unable to make mortgage payments on any
property, losses could be sustained as a result of the mortgagee's exercise of its right of foreclosure and sale.
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, 2023, investment properties under development account for 0.0% of Artis's total investment properties (December 31, 2022, 5.2%).
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, 2023, 29.1% of the REIT's mortgages and loans payable bear interest at fixed rates, and a further 26.9% of the REIT's
mortgages and loans payable bear interest at variable rates with interest rate swaps in place. At December 31, 2023, the REIT is a party to $1,444,236 of variable
rate debt, including credit facilities (December 31, 2022, $1,434,072). At December 31, 2023, the REIT had entered into interest rate swaps to hedge the interest
rate risk associated with $246,897 of variable rate debt (December 31, 2022, $217,136). 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, 2023, the REIT's ratio of secured mortgages and loans to GBV was 24.3%, compared to 18.9% at December 31, 2022. At December 31, 2023, the
REIT's ratio of total debt to GBV was 50.9%, compared to 48.5% at December 31, 2022. Approximately 29.8% of Artis's maturing mortgage debt comes up for
renewal during 2024, and 27.0% in 2025. Management is in discussion with various lenders with respect to the renewal or refinancing of the 2024 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.
74 | Artis Real Estate Investment Trust
2023 Annual Report | 75
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
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 978 tenant leases with a weighted-average term to maturity of 5.1 years. Approximately 46.7% of the REIT's gross revenue is derived from national or
government tenants. As indicated below, the largest tenant by gross revenue is Prime Therapeutics, LLC, which is a diversified pharmacy solutions organization
serving health plans, employers and government programs. The second largest tenant by gross revenue is Bell MTS, which is part of Canada's leading
telecommunications company, Bell Canada, providing Manitobans with voice services, internet and data services, and television.
Tenant
Tenant location
% of total gross
revenue (2)
Owned share
of GLA
(000's of S.F.)
% of total GLA
Weighted-
average
remaining
lease term
Top 20 Tenants by Gross Revenue (1)
Prime Therapeutics LLC
Bell MTS
Catalent Pharma Solutions, LLC
A WIN Management, Inc.
CB Richard Ellis, Inc.
Bell Canada
PBP, Inc.
TDS Telecommunications Corporation
Recipe Unlimited Corporation
UCare Minnesota
Silent Aire USA Inc.
Telephone and Data Systems, LLC
Civeo Canada Ltd.
Soo Line Railroad Company
MLT Aikins LLP
Cineplex Entertainment LP
U of Wisconsin Medical Foundation
Maple Leaf Consumer Foods Inc.
SunGard Recovery Services Inc.
U of WI Hospitals & Clinic Authority
Total
Tenant
Federal Government
Provincial or State Government
Civic or Municipal Government
Total
Weighted-average term to maturity (entire portfolio)
U.S.
Canada
U.S.
U.S.
U.S.
Canada
U.S.
U.S.
Canada
U.S.
U.S.
U.S.
Canada
U.S.
Canada
Canada
U.S.
Canada
U.S.
U.S.
2.4 %
2.1 %
1.7 %
1.7 %
1.5 %
1.5 %
1.4 %
1.4 %
1.4 %
1.2 %
1.2 %
1.0 %
1.0 %
1.0 %
0.9 %
0.9 %
0.9 %
0.8 %
0.8 %
0.8 %
386
212
232
152
108
115
518
127
100
123
288
104
71
92
60
107
101
163
98
86
2.8 %
1.5 %
1.7 %
1.1 %
0.8 %
0.8 %
3.8 %
0.9 %
0.7 %
0.9 %
2.1 %
0.8 %
0.5 %
0.7 %
0.4 %
0.8 %
0.7 %
1.2 %
0.7 %
0.6 %
25.6 %
3,243
23.5 %
Government Tenants by Gross Revenue (1)
% of total
gross revenue (2)
Owned share
of GLA
(000's of S.F.)
% of total GLA
2.7 %
0.9 %
0.5 %
4.1 %
243
128
66
437
1.8 %
0.9 %
0.5 %
3.2 %
10.8
3.0
12.6
8.9
3.0
5.9
7.9
6.0
5.0
9.6
4.0
0.3
4.5
3.7
0.8
1.9
3.7
5.5
2.0
2.3
6.3
Weighted-
average
remaining
lease term
4.7
8.6
13.0
7.1
5.1
(1) Based on owned share of GLA of properties. Excludes properties held in equity accounted investments and Artis's commercial/residential property (300 Main).
(2) Total gross revenue is in Canadian and US dollars.
Lease Rollover
The value of investment properties and the stability of cash flows derived from those properties is dependent upon the level of occupancy and lease rates in those
properties. Upon expiry of any lease, there is no assurance that a lease will be renewed on favourable terms, or at all; nor is there any assurance that a tenant can
be replaced. A contraction in the Canadian or U.S. economy would negatively impact demand for space in industrial, office and retail properties, consequently
increasing the risk that leases expiring in the near term will not be renewed.
Details of the portfolio's expiry schedule is as follows:
Expiry Year
AB
BC
MB
SK
ON
AZ
CO
MN
TX
WI
Total
Canada
U.S.
2024
2025
2026
2027
2028 & later
Vacant
Month-to-month
Total portfolio
1.5 %
1.5 %
1.7 %
1.0 %
4.4 %
1.9 %
0.1 %
0.4 %
0.1 %
0.4 %
0.1 %
1.1 %
0.2 %
— %
4.4 %
3.0 %
5.7 %
2.1 %
8.8 %
2.4 %
0.1 %
0.3 %
0.1 %
0.1 %
1.2 %
1.7 %
0.1 %
0.1 %
— %
— %
— %
— %
0.7 %
— %
— %
1.2 %
2.6 %
1.5 %
2.6 %
4.1 %
0.8 %
— %
0.2 %
0.3 %
0.1 %
— %
0.9 %
0.6 %
1.2 %
1.1 %
0.1 % 10.3 %
0.5 %
— %
1.7 %
— %
0.3 %
0.7 %
— %
2.0 %
9.2 %
— %
— %
2.1 %
0.9 %
1.6 %
1.0 %
4.8 %
2.4 %
— %
11.3 %
9.8 %
12.3 %
11.1 %
45.2 %
10.0 %
0.3 %
12.1 %
2.3 % 26.5 %
3.6 %
0.7 %
12.8 %
1.2 % 15.8 % 12.2 % 12.8 % 100.0 %
Artis's real estate is diversified across five Canadian provinces and five U.S. states, and across the industrial, office, retail and residential asset classes. By city and
asset class, the five largest markets of the REIT's portfolio (by Q4-23 net operating income) are Madison office, Twin Cities Area office, Greater Phoenix Area office,
Greater Houston Area industrial and Winnipeg office.
SIFT RULES AND OTHER TAX-RELATED FACTORS
The Income Tax Act (Canada) contains legislation affecting the tax treatment of a specified investment flow-through ("SIFT") trust or partnership ("the SIFT
Rules"), which are applicable to publicly traded income trusts unless the trust satisfies the REIT Exception. The REIT Exception to the SIFT Rules is comprised of a
number of technical tests and the determination as to whether the REIT qualifies for the REIT Exception in any particular taxation year can only be made with
certainty at the end of the taxation year. Management believes that the REIT has met the requirements of the REIT Exception in each taxation year since 2009 and
that it has met the REIT Exception throughout the years ended December 31, 2023 and December 31, 2022. 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.
If Artis is subject to the SIFT Rules, the SIFT Rules may, depending on the nature of distributions from Artis, including what portion of its distributions are income
and what portion are returns of capital, have a material adverse effect on the after-tax returns of certain Unitholders.
Also, in the event that the SIFT Rules apply to Artis, they may adversely affect the marketability of the Units or Preferred Units, the amount of cash available for
distributions and, among other things, there can be no assurance that Artis will be able to maintain the portion of distributions that is treated as a non-taxable
return of capital.
The Tax Act 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.
Management of Artis intends to ensure that Artis satisfies the conditions to qualify as a closed-end mutual fund trust by complying with the restrictions in the Tax
Act as they are interpreted and applied by the Canada Revenue Agency. No assurance can be given that Artis will be able to comply with these restrictions at all
times. If Artis were not to qualify as a mutual fund trust, the consequences could be material and adverse.
There can be no assurance that the Canadian federal income tax laws respecting mutual fund trusts, or the ways in which these rules are interpreted and applied
by the Canada Revenue Agency, may not be changed in a manner which adversely affect Artis and/or its security holders.
The REIT operates in the U.S. through four U.S. REITs (Artis US Holdings, Inc., Artis US Holdings II, LLC, Artis US Holdings III, LLC and Artis US Holdings IV, LLC)
which are primarily capitalized by the REIT by way of common equity, debt in the form of notes owed to the REIT and preferred shares. If the Internal Revenue
Service (“IRS”) 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 2023, 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.
The REIT entered into a Space Sharing Licence Agreement with Sandpiper for use of certain office premises. The agreement has 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.
76 | Artis Real Estate Investment Trust
2023 Annual Report | 77
Management’s Discussion & AnalysisManagement’s Discussion & Analysis 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 was effective May 17, 2021 and 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
Three months ended
December 31,
Year ended
December 31,
2023
2022
2023
32
$
31
$
127
$
172
446
1,064
2022
124
1,231
204
$
477
$
1,191
$
1,355
$
$
Amounts payable to Sandpiper were $171 as at December 31, 2023 (December 31, 2022, $446).
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, 2023, the REIT had a balance payable to ICE II LP of $987 (December 31, 2022, $738).
SUBSEQUENT EVENTS
Subsequent to December 31, 2023, the following transactions took place:
The REIT received full repayment of a note receivable in the amount of $10,000.
The REIT disposed of one industrial property, one office property and one retail property all located in Winnipeg, Manitoba for an aggregate sale price
of $38,395.
The REIT acquired an additional 5% interest in Park 8Ninety V, an industrial property located in the Greater Houston Area, Texas, for total
consideration of US$9,132. Prior to the acquisition date, the REIT owned 95% of this investment property and the property was classified as a joint
venture.
The REIT entered into an amended agreement to extend the maturity date of the $100,000 non-revolving credit facility to February 6, 2026, at an
interest rate of adjusted CORRA plus 1.70% or prime plus 0.70%.
The REIT repaid a net balance of $46,000 and drew US$40,000 on its revolving term credit facilities.
The REIT received new mortgage financing in the amount of $24,300 on two previously unencumbered retail properties.
The REIT repaid a mortgage on an industrial property in the amount of US$30,296 and a mortgage on a retail property in the amount of $10,274.
The REIT purchased equity securities for $1,745 and sold equity securities for net proceeds of $27,252.
The REIT declared a quarterly cash distribution of $0.4370625 per Series I preferred unit for the three months ended January 31, 2024.
OUTSTANDING UNIT DATA
As of February 29, 2024, the balance of common units outstanding is as follows:
Units outstanding at December 31, 2023
Units issued on redemption of restricted units
Units outstanding at February 29, 2024
Total
107,950,866
2,286
107,953,152
•
•
•
•
•
•
•
•
•
•
SUMMARIZED QUARTERLY INFORMATION
$000's, except per unit amounts
Q4-23
Q3-23
Q2-23
Q1-23
Q4-22
Q3-22
Q2-22
Q1-22
Revenue
Net operating income
Net (loss) income
$ 80,892
$ 80,412
$ 84,278
$ 90,255
$ 94,102
$ 94,114
$ 91,055
$ 93,241
45,352
43,737
46,867
48,061
52,377
53,716
52,425
51,462
(86,837)
(137,516)
(84,954)
(22,761)
(128,301)
(94,450)
(19,556)
237,013
Total comprehensive (loss) income
(116,270)
(109,017)
(115,441)
(23,671)
(147,659)
Basic (loss) income per common unit
Diluted (loss) income per common unit
(0.84)
(0.84)
(1.29)
(1.29)
(0.78)
(0.78)
(0.22)
(0.23)
(1.13)
(1.14)
8,867
(0.85)
(0.86)
30,553
213,776
(0.20)
(0.21)
1.91
1.90
FFO (1)
FFO per unit - diluted (1)
FFO payout ratio (1) (2)
AFFO (1)
AFFO per unit - diluted (1)
AFFO payout ratio (1) (2)
$ 27,275
$ 29,501
$ 29,946
$ 33,817
$ 34,690
$ 41,552
$ 44,939
$ 42,008
0.25
60.0 %
0.27
55.6 %
0.26
57.7 %
0.29
51.7 %
0.30
50.0 %
0.36
41.7 %
0.38
39.5 %
0.34
44.1 %
$ 15,418
$ 16,640
$ 17,079
$ 20,861
$ 21,307
$ 28,505
$ 31,567
$ 29,571
0.14
0.15
0.15
107.1 %
100.0 %
100.0 %
0.18
83.3 %
8.4 %
2.28
0.18
83.3 %
5.2 %
2.35
0.24
62.5 %
4.3 %
2.83
0.27
55.6 %
0.7 %
3.35
0.24
62.5 %
(2.6) %
3.90
Same Property NOI growth (decline) (1)
Adjusted EBITDA interest coverage ratio (1)
9.2 %
1.93
6.0 %
2.10
6.9 %
2.04
Leasable area renewed (in square feet)
Increase in weighted-average rental rate
261,889
177,787
269,026
315,574
325,361
486,937
388,424
255,815
5.8 %
3.5 %
4.6 %
4.8 %
6.9 %
3.0 %
3.7 %
7.8 %
2023
2023
Dec 31
Sept 30
2023
Jun 30
2023
2022
2022
Mar 31
Dec 31
Sept 30
2022
Jun 30
2022
Mar 31
Number of properties
GLA (000's of square feet)
Occupancy (3)
119
13,727
90.1 %
121
14,014
89.9 %
122
14,042
90.3 %
135
15,600
90.5 %
134
15,462
90.1 %
152
18,065
90.5 %
152
17,585
90.7 %
153
17,712
89.5 %
NAV per unit (1)
$
13.96
$
15.26
$
16.28
$
17.09
$
17.38
$
19.26
$
19.37
$
19.09
Total debt to Adjusted EBITDA (1)
Secured mortgages and loans to GBV (1)
Total debt to GBV (1)
7.7
24.3 %
50.9 %
8.0
23.2 %
49.4 %
7.8
23.1 %
47.2 %
8.3
19.6 %
49.1 %
8.3
18.9 %
48.5 %
9.2
20.5 %
47.9 %
8.9
20.5 %
46.0 %
8.5
22.0 %
43.0 %
Fair value unencumbered assets (1)
$ 1,567,001
$ 1,650,006
$ 1,659,698
$ 2,023,557
$ 2,034,409
$ 2,103,103
$ 1,954,006
$ 1,889,416
Total non-current financial liabilities
1,047,231
1,548,240
1,172,550
1,293,551
974,063
556,374
1,159,071
1,186,622
(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 2022.
(3) Excludes properties held for redevelopments, new developments in process, completed new developments, and properties held in equity accounted investments. Refer to the Property
Portfolio section of this MD&A.
The quarterly financial results have been impacted by acquisition, disposition and (re)development activity, the impact of foreign exchange, lease termination
income, transaction costs, and the fair value gains and losses on investment properties and financial instruments.
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.
The REIT declared a monthly cash distribution of $0.05 per common unit for the months of January and February 2024.
Total assets
$ 3,735,030
$ 3,871,689
$ 3,983,481
$ 4,467,506
$ 4,553,913
$ 5,180,503
$ 4,998,257
$ 4,798,662
As of February 29, 2024, Artis has 3,248,009 Series E preferred units and 4,670,040 Series I preferred units outstanding, unchanged from December 31, 2023.
VALUATION OF INVESTMENT PROPERTIES
The balance of restricted units outstanding as of February 29, 2024 is 463,590, of which none have vested.
The balance of deferred units outstanding as of February 29, 2024 is 358,818. All of these deferred units have vested, none of which are redeemable.
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 7.89% at December 31, 2023 and 7.48% at December 31, 2022. 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 6.89% at December 31, 2023 and
6.40% at December 31, 2022.
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.
78 | Artis Real Estate Investment Trust
2023 Annual Report | 79
Management’s Discussion & AnalysisManagement’s Discussion & Analysis
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.
VALUATION OF DEFERRED TAX ASSETS AND LIABILITIES
The REIT has reviewed the SIFT Rules (see discussion under the Tax Risk section of this MD&A) and has assessed their interpretation and application to the REIT's
assets and revenues. While there are uncertainties in the interpretation and application of the SIFT Rules, the REIT believes it has met the REIT Exception
throughout the years ended December 31, 2023 and 2022.
VALUATION OF PREFERRED INVESTMENTS
Investment in the junior preferred units of Iris is assessed for impairment by evaluating the expected credit loss. The REIT considers the 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 at
the reporting date.
CHANGES IN ACCOUNTING STANDARDS
New or Revised Accounting Standard Adopted During the Year
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. This standard had no impact on the consolidated financial statements.
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. Although the amendments
did not result in any changes to the accounting policies themselves, they impacted the accounting policy information disclosed in the consolidated financial
statements. The material accounting policy information disclosed in this note 2 is updated to be in line with the 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 had no impact on the consolidated financial statements.
Future Changes in Accounting Standards
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.
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 defined in NI 52-109). Based on this evaluation, the CEO and CFO have concluded that, as at December 31,
2023, 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, 2023, 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, 2023, 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 defined 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 as at December 31, 2023.
Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(in thousands of Canadian dollars, except unit and per unit amounts)
80 | Artis Real Estate Investment Trust
2023 Annual Report | 81
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 29, 2024
Jaclyn Koenig, CPA, CA
Chief Financial Officer
February 29, 2024
82 | Artis Real Estate Investment Trust
2023 Annual Report | 83
Consolidated Financial StatementsConsolidated Financial Statements
84 | Artis Real Estate Investment Trust
2023 Annual Report | 85
Consolidated Financial StatementsConsolidated Financial Statements Consolidated Balance Sheets
(In thousands of Canadian dollars)
ASSETS
Non-current assets:
Investment properties
Investment properties under development
Equity accounted investments
Preferred investments
Equity securities
Property and equipment
Notes 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
2023
2022
4
4
5
6
8
9
4
10
9
11
12
13
14
25
12
13
15
14
31
35
$
2,494,134
$
3,156,206
947
260,246
144,084
152,002
4,348
32,428
191,552
326,050
114,184
316,768
5,343
37,702
3,088,189
4,147,805
571,760
8,413
14,742
15,960
7,026
28,940
646,841
335,813
12,161
993
17,307
10,666
29,168
406,108
$
3,735,030
$
4,553,913
$
$
637,089
199,630
205,590
3,310
1,612
1,047,231
274,659
—
23,668
84,566
588,574
971,467
2,018,698
1,716,332
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
$
3,735,030
$
4,553,913
86 | Artis Real Estate Investment Trust
2023 Annual Report | 87
Consolidated Financial StatementsConsolidated Financial Statements
Consolidated Statements of Operations
(In thousands of Canadian dollars, except unit and per unit amounts)
Consolidated Statements of Changes in Unitholders' Equity
(In thousands of Canadian dollars)
Revenue
Expenses:
Property operating
Realty taxes
Total operating expenses
Net operating income
Other income (expenses):
Interest and other income
Distribution income from equity securities
Interest expense
Corporate expenses
Strategic review expenses
Equity securities expenses
Net (loss) income from equity accounted investments
Fair value loss on investment properties
Fair value loss on financial instruments
Foreign currency translation gain (loss)
(Loss) income before income taxes
Income tax recovery (expense)
Net loss
Other comprehensive (loss) income that may be reclassified to net loss in subsequent periods:
Unrealized foreign currency translation (loss) gain
Unrealized foreign currency translation (loss) gain on equity accounted investments
Net change in derivatives designed as cash flow hedges of equity accounted investments
Other comprehensive (loss) income
Total comprehensive (loss) income
Basic loss per unit attributable to common unitholders
Diluted loss per unit attributable to common unitholders
Weighted-average number of common units outstanding:
Basic
Diluted
See accompanying notes to consolidated financial statements.
Note
2023
2022
Year ended
December 31,
Common units
capital
contributions
Retained
earnings
(deficit)
Accumulated
other
comprehensive
income
Contributed
surplus
Total
common
equity
Total
preferred
equity
Total
19
$
335,837
$
372,512
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
Distributions in units (note 16)
230
—
(123,195)
(325)
—
—
9,234
—
—
—
—
(5,294)
—
(145,094)
(9,234)
—
—
—
—
—
110,831
—
—
—
(3,866)
230
(3,866)
—
230
(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
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)
Net loss
Other comprehensive loss
Distributions
113
(113,456)
—
—
—
—
—
(332,068)
—
(83,859)
—
—
—
(32,331)
—
—
113
—
113
62,893
(50,563)
(14,119)
(64,682)
—
—
—
(332,068)
(32,331)
(83,859)
—
—
—
(332,068)
(32,331)
(83,859)
Unitholders' equity, December 31, 2023
$
1,638,584 $
(488,883) $
224,258 $
150,686 $ 1,524,645 $
191,687 $ 1,716,332
See accompanying notes to consolidated financial statements.
100,386
51,434
102,450
60,082
151,820
162,532
184,017
209,980
32,359
12,365
(121,876)
(6,984)
(207)
(878)
(57,385)
(344,286)
(41,730)
6,932
18,944
10,710
(89,437)
(7,661)
—
(1,890)
74,659
(178,431)
(21,130)
(6,683)
(337,673)
9,061
5,605
(14,355)
(332,068)
(5,294)
(27,408)
(2,489)
(2,434)
102,923
7,908
—
(32,331)
110,831
(364,399)
$
105,537
(3.10)
$
(0.18)
(3.10)
(0.19)
111,294,362
111,294,362
117,932,876
118,469,587
20
8
21
22
23
8
5
4
24
25
16
16
16
16
$
$
88 | Artis Real Estate Investment Trust
2023 Annual Report | 89
Consolidated Financial StatementsConsolidated Financial Statements
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
Cash provided by (used in):
Operating activities:
Net loss
Adjustments for:
Interest income on preferred investments received in-kind
Distribution income from equity securities
Net loss (income) from equity accounted investments
Fair value loss on investment properties
Fair value loss on financial instruments
Unrealized foreign currency translation (gain) 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
Deposits on investment properties held for sale
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
Purchase of common units under normal course issuer bid
Purchase of preferred units under normal course issuer bid
Redemption of preferred units
Distributions paid on common units
Distributions paid on preferred units
Foreign exchange (loss) gain on cash held in foreign currency
Decrease in cash
Cash, beginning of year
Cash, end of year
See accompanying notes to consolidated financial statements.
90 | Artis Real Estate Investment Trust
Note
2023
Year ended
December 31,
2022
$
(332,068)
$
(5,294)
6
8
5
4
24
26
26
3
3
13
13
16
16
16
(29,900)
(12,365)
57,385
344,286
41,730
(8,031)
(6,206)
26,075
(944)
79,962
—
222,016
(27,451)
(31,921)
(44,959)
(600)
4,346
—
(1,125)
134,029
13,069
(376)
(323)
7,426
25,000
(742)
298,389
(193,135)
326,327
—
(250,000)
641,292
(694,312)
(50,180)
(320)
(54,305)
(10,377)
—
(80,443)
(12,736)
(378,189)
(390)
(228)
29,168
$
28,940
$
(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
29,168
Notes to Consolidated Financial Statements
Years ended December 31, 2023 and 2022
(In thousands of Canadian dollars, except unit and per unit amounts)
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 $1.7995 per Series E Unit and $1.74825 per
Series I Unit.
Note 2.
Material accounting policy information
(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.
(d) Translation of foreign currencies:
The consolidated financial statements are presented in Canadian dollars, which is the functional currency of the REIT.
Assets and liabilities of the REIT's U.S. 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 U.S. dollar 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.
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.
2023 Annual Report | 91
Consolidated Financial StatementsConsolidated Financial Statements
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:
(k) 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.
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.
The taxable subsidiaries of the REIT account for income taxes as follows:
Investment properties are classified as investment properties under development once construction at the property has commenced. Investment properties under
development include initial acquisition costs and other direct costs during the period of development. Borrowing costs associated with direct expenditures on
properties under development are capitalized from the commencement of the construction until the date of practical completion. The REIT considers practical
completion to have occurred when all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
The REIT occupies a portion of space in several of its investment properties. In the case of mixed use investment property and property held for use in the
production of goods or services, the REIT classifies the property as investment property when only an insignificant portion is owner-occupied. The REIT considers
the owner-occupied portion as insignificant when the property is primarily held to earn rental income.
A property acquisition is accounted for as a business combination using the acquisition method if the assets acquired and liabilities assumed constitute a business,
and the REIT obtains control of the business. The cost of a business combination is measured as the fair value of the assets given up, equity instruments issued
and liabilities assumed at the acquisition date. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at fair value at the date of acquisition. The REIT recognizes assets or liabilities, if any, resulting from a contingent consideration arrangement at
their acquisition date fair value and such amounts form part of the cost of the business combination. Changes in the fair value of contingent consideration
arrangements that qualify as measurement period adjustments, adjustments arising from additional information obtained about an acquisition within one year of
its date, are adjusted retrospectively. All other changes in fair value are recognized in profit or loss for the period.
Leasing commissions and straight-line rent receivables are included in the carrying amount of investment properties.
Payments to tenants under lease obligations are included in the carrying amount of investment properties. Payments that are determined to primarily benefit the
tenant are treated as tenant inducements that reduce revenue.
Right-of-use assets, held under leases, that are investment properties are recognized in the REIT's consolidated balance sheet at fair value.
(g) Investment properties held for sale:
Investment properties are categorized as held for sale at the point in time when the asset 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 designated as held for sale continue to be measured at fair value and are presented separately
on the consolidated balance sheets.
(h) Investments in associates and joint arrangements:
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.
(i) 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.
(j) Unit-based compensation:
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.
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.
(l) 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.
(m) 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 (i). 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 (i). 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 (h). 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 (h). 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 (k) and note 25.
Impairment of preferred investments and notes receivable - The critical estimates and assumptions underlying the impairment assessments are described in
note 2 (e) and note 33.
92 | Artis Real Estate Investment Trust
2023 Annual Report | 93
Consolidated Financial StatementsConsolidated Financial Statements
Allowance for doubtful accounts - The critical estimates and assumptions underlying the valuation of allowance for doubtful accounts are described in note 2
(e) and note 33.
Dispositions:
–
–
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 34.
(n) New or revised accounting standards adopted during the year:
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. This standard had no impact on the consolidated financial statements.
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. Although the amendments
did not result in any changes to the accounting policies themselves, they impacted the accounting policy information disclosed in the consolidated financial
statements. The material accounting policy information disclosed in this note 2 is updated to be in line with the 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 had no impact on the consolidated financial statements.
(o) Future changes in accounting standards:
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.
Note 3.
Acquisitions and dispositions of investment properties
Acquisitions:
The REIT did not acquire any properties during the year ended December 31, 2023.
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.
The acquisition of the interest in Park 8Ninety II has been accounted for using the acquisition method, with the results of operations included in the REIT's
accounts from the date of acquisition. The net assets acquired, excluding the acquisition of equity accounted investments, were as follows:
Investment properties
Long-term debt, including acquired above- and below-market mortgages, net of financing costs
Other net liabilities
Cash consideration
$
$
5,219
(1,885)
(58)
3,276
The REIT disposed of the following properties during the year ended December 31, 2023:
Property
Property count
Location
Disposition date
Asset class
North 48 Commercial Centre
Liberton Square
Gateway Power Centre
Visions Building
Namao South
Clearwater Creek Distribution Center
Eagle Creek
St. Vital Square
Minnesota Industrial Portfolio II
EMC Building
161 Inverness
Memorial Crossing
1
1
1
1
1
1
1
1
6
1
1
1
Saskatoon, SK
March 14, 2023
Greater Edmonton Area, AB
April 19, 2023
Grande Prairie, AB
Calgary, AB
Edmonton, AB
Twin Cities Area, MN
Twin Cities Area, MN
Winnipeg, MB
Twin Cities Area, MN
Edmonton, AB
Greater Denver Area, CO
May 15, 2023
May 29, 2023
May 30, 2023
June 7, 2023
June 16, 2023
June 16, 2023
June 27, 2023
September 29, 2023
November 17, 2023
Office
Retail
Retail
Retail
Retail
Industrial
Industrial
Retail
Industrial
Office
Office
Calgary, AB
November 29, 2023
Industrial
On June 9, 2023, the REIT disposed of a parcel of office development land located in Madison, Wisconsin.
The cash proceeds received from the sale of the above properties, net of costs and related debt, were $222,016. In conjunction with the sale of an office property,
the REIT also received a note receivable in the amount of $13,619, which is secured by the property sold (note 9). The assets and liabilities associated with the
properties were derecognized.
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.
Note 4.
Investment properties, investment properties under development and investment properties held for sale
Balance, beginning of year
Additions:
Capital expenditures
Capitalized interest (1)
Leasing commissions
Straight-line rent adjustments
Tenant inducement additions, net of amortization
Dispositions
Foreign currency translation loss
Fair value loss
Reclassification of investment properties under development
Reclassification of investment properties held for sale
Investment
properties
Investment
properties under
development
Year ended
December 31, 2023
Investment
properties held for
sale
$
3,156,206
$
191,552
$
335,813
24,881
—
5,112
1,816
11,199
—
(36,809)
(277,054)
156,285
(547,502)
26,870
2,770
1,851
—
984
—
(501)
(37,563)
(156,285)
(28,731)
318
—
165
738
795
(310,921)
(1,712)
(29,669)
—
576,233
Balance, end of year
$
2,494,134
$
947
$
571,760
(1) During the year ended December 31, 2023, interest was capitalized to investment properties under development at a weighted-average effective rate of 6.87%.
94 | Artis Real Estate Investment Trust
2023 Annual Report | 95
Consolidated Financial StatementsConsolidated Financial Statements
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
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, 2023
December 31, 2022
Maximum
Minimum
Weighted-
average
Maximum
Minimum
Weighted-
average
9.75 %
9.00 %
9.00 %
12.0
10.25 %
8.75 %
9.00 %
11.0
10.25 %
9.00 %
9.00 %
12.0
5.25 %
4.25 %
4.25 %
10.0
6.75 %
6.00 %
5.50 %
10.0
5.25 %
4.25 %
4.25 %
10.0
7.47 %
6.49 %
6.46 %
10.3
8.48 %
7.52 %
7.49 %
10.4
7.89 %
6.92 %
6.89 %
10.3
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
Balance, end of year
$
3,156,206
$
191,552
$
335,813
The following sensitivity table outlines the impact of a 0.25% change in the weighted-average capitalization rate on investment properties at December 31, 2023:
The above information represents the REIT's entire portfolio of investment properties, excluding properties held in the REIT's equity accounted investments.
(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%.
The REIT had two industrial properties, 10 office properties, 16 retail properties, one parking lot and one parcel of development land classified as investment
properties held for sale that were actively marketed for sale or under unconditional or conditional sale agreements at December 31, 2023 (December 31, 2022, 10
industrial properties, four office properties, one retail property, two industrial properties under development and two parcels of development land). The
properties held for sale had an aggregate mortgage payable balance of $134,895 at December 31, 2023 (December 31, 2022, $72,018). 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, 2023, included in investment properties was $47,834 (December 31, 2022, $48,962) of net straight-line rent receivables arising from the
recognition of rental income on a straight-line basis over the lease term.
Investment properties held for sale include right-of-use assets held under a lease with an aggregate fair value of $12,981 at December 31, 2023 (December 31,
2022, included in investment properties $10,420). The lease payments required under this lease were fully paid at the time of acquisition of the property.
At December 31, 2023, investment properties with a fair value of $1,499,840 (December 31, 2022, $1,649,162) 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, 2023, 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 $788,506 (year ended December 31, 2022, $615,315), 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, 2023 and 2022.
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.
Under the fair value hierarchy, the fair value of the REIT's investment properties is considered Level 3, as described in note 34.
Change to fair value if capitalization rate increased
by 0.25%
Change to fair value if capitalization rate decreased
by 0.25%
$
$
(60,605)
(49,098)
(109,703)
$
$
65,873
52,685
118,558
Canada
U.S.
Note 5.
Equity accounted investments
The REIT has the following equity accounted investments:
Principal purpose
Location
Ownership interest
December 31,
December 31,
2023
2022
Associates:
Iris Acquisition II LP
Investment in Cominar Real Estate Investment
Trust
Greater Montreal & Quebec City
Areas, QC/Greater Ottawa
Area, ON
32.64 %
32.64 %
Park Lucero East
Investment property
Greater Phoenix Area, AZ
10.00 %
10.00 %
Joint ventures:
Park 8Ninety V
Corridor Park
Graham Portfolio
Investment property
Investment property
Investment property
The Point at Inverness
Investment property
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
—
—
95.00 %
90.00 %
75.00 %
50.00 %
50.00 %
50.00 %
95.00 %
90.00 %
75.00 %
50.00 %
50.00 %
50.00 %
During the year ended December 31, 2023, the REIT contributed $600 to Corridor Park, Park Lucero East, The Point at Inverness and Park 8Ninety V equity
accounted investments.
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 (see note 6).
96 | Artis Real Estate Investment Trust
2023 Annual Report | 97
Consolidated Financial StatementsConsolidated Financial Statements
—
17,918
—
7,611
12,452
—
—
823
12,452
8,434
Note 8.
Equity securities
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 28).
The REIT is contingently liable for the obligations of certain associates and joint ventures. As at December 31, 2023, the co-owners' share of mortgage liabilities
was $55,254 (December 31, 2022, $49,982). 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:
Iris
Other
associate
Joint
ventures
Total
Iris
Other
associate
Joint
ventures
Total
December 31, 2023
December 31, 2022
$
641,906
$
11,181
$
228,928
$
882,015
$
666,538
$
—
$
212,794
$
879,332
Non-current assets:
Investment properties
Investment properties under
development
Other non-current assets
Current assets:
Investment properties held for
sale
Other current assets
—
16,845
14,738
9,133
—
—
—
317
—
1,073
—
8,251
14,738
17,701
102,119
20,055
—
50
19,303
7,019
121,422
27,124
Total assets
682,622
11,498
238,252
932,372
796,323
12,502
239,939
1,048,764
Non-current liabilities:
Mortgages, loans and other debt
491,946
—
26,852
518,798
435,007
4,255
59,159
498,421
Current liabilities:
Mortgages, loans and other debt
Other current liabilities
78,158
24,250
4,864
184
39,236
6,636
122,258
31,070
192,715
22,416
—
178
959
8,025
193,674
30,619
Total liabilities
594,354
5,048
72,724
672,126
650,138
4,433
68,143
722,714
REIT's share of net assets of equity
accounted investments
$
88,268
$
6,450
$
165,528
$
260,246
$
146,185
$
8,069
$
171,796
$
326,050
Year ended
December 31, 2023
Year ended
December 31, 2022
Iris
Other
associate
Joint
ventures
Total
Iris
Other
associate
Joint
ventures
Total
$
92,441
$
541
$
18,619
$
111,601
$
87,736
$
—
$
16,262
$
103,998
48,983
43,458
(9,713)
—
(89,229)
123
418
(1,578)
—
(385)
7,533
56,639
45,710
11,086
54,962
42,026
(8,238)
(19,529)
—
—
(3,204)
(92,818)
(53,683)
111,652
(65,810)
18
(18)
5,133
—
(112)
7,376
53,104
8,886
50,894
25,240
—
(2,968)
(23,310)
111,652
(68,890)
Revenue
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 (loss) income
(55,484)
(1,545)
(356)
(57,385)
34,185
5,003
31,158
70,346
Note 7.
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,
2023
50.00 %
50.00 %
2022
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, 2023, the co-owners' share of mortgage liabilities was $3,769
(December 31, 2022, $4,097). Management has assessed that the assets available from its joint operations are sufficient for the purpose of satisfying such
obligations.
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 (note 24)
Balance, end of year
December 31,
2023
Year ended
December 31,
2022
$
$
316,768
1,125
(134,029)
—
(31,862)
77,186
335,971
(41,469)
(13,488)
(41,432)
$
152,002
$
316,768
For the year ended December 31, 2023, the REIT earned distribution income of $12,365 (2022, $10,710) and incurred commissions, service and professional fees of
$878 (2022, $1,890), inclusive of services fees paid to Sandpiper (note 28).
Note 9.
Notes receivable
December 31,
December 31,
2023
2022
Note receivable, maturing in November, 2028, bearing interest at an effective rate of 8.967% per annum,
interest-only monthly payment until maturity, secured by an office property.
$
13,283
$
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 5.00% per annum, interest-only monthly
payment until maturity, secured by an office property. (1)
Note receivable from tenant, maturing in November 2031, bearing interest at 8.50% per annum, repayable in
blended monthly installments of $66 (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.
Note receivable, bearing interest at 4.00% per annum, interest-only monthly payment until maturity, secured
by two office properties, fully repaid in January 2023.
10,312
10,033
4,584
3,666
—
5,292
47,170
14,742
—
10,321
10,033
5,094
3,610
6,020
3,617
38,695
993
$
32,428
$
37,702
Deferred tax impact of temporary
differences in Iris (1)
Net (loss) income from equity
accounted investments
—
—
—
—
4,313
—
—
4,313
Other notes receivable
$
(55,484) $
(1,545) $
(356) $
(57,385)
$
38,498
$
5,003
$
31,158
$
74,659
(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.
Current portion
Non-current portion
(1) This note was fully repaid on maturity subsequent to December 31, 2023.
98 | Artis Real Estate Investment Trust
2023 Annual Report | 99
Consolidated Financial StatementsConsolidated Financial Statements
Note 10.
Prepaid and other assets
Prepaid insurance
Prepaid realty taxes
Prepaid acquisition, disposition and development costs
Derivative instruments (note 34)
Other prepaid expenses
Note 11. Accounts receivable and other receivables
Rents receivable
Deferred rents receivable
Allowance for doubtful accounts
Accrued recovery income
Other receivables
Refer to note 33 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,
$
2023
5,017
194
(2,102)
3,141
9,710
2022
5,229
238
(2,187)
3,470
10,557
$
15,960
$
17,307
December 31,
December 31,
2023
2022
$
916,321
$
866,736
—
(4,573)
911,748
274,659
782
(2,820)
864,698
476,129
$
637,089
$
388,569
Certain of the REIT's investment properties have been pledged as security under mortgages and other security agreements. As at December 31, 2023, 29.1% of
the REIT's mortgages and loans payable bear interest at fixed rates (December 31, 2022, 38.6%), and a further 26.9% of the REIT's mortgages and loans payable
bear interest at variable rates with interest rate swaps in place (December 31, 2022, 25.1%). The weighted-average effective rate on all mortgages and loans
payable was 6.63% and the weighted-average nominal rate was 6.17% at December 31, 2023 (December 31, 2022, 4.84% and 4.46%, respectively). Maturity dates
range from January 2, 2024 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 E
April 29, 2022
April 29, 2025
5.600 %
$
December 31,
December 31,
$
2023
2,473
431
1,379
1,429
2,701
2022
1,958
356
634
5,885
3,328
Series E
December 31, 2023
December 31, 2022
Face value
Unamortized
financing
costs
$
$
200,000
200,000
450,000
$
$
$
$
(370)
(370)
(909)
Carrying
value
199,630
199,630
449,091
Current
portion
Non-current
portion
$
$
—
—
$
$
249,723
199,630
199,630
199,368
On September 18, 2023, upon maturity, the REIT repaid the outstanding face value of the 3.824% Series D senior unsecured debentures in the amount of $250,000.
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.
$
8,413
$
12,161
During the year ended December 31, 2023, financing cost amortization of $539 (2022, $545) was recorded.
Interest expense on the senior unsecured debentures is determined by applying the effective interest rate to the outstanding liability balance. The difference
between actual cash interest payments and interest expense is an accretion to the liability.
In accordance with the Series E senior unsecured debenture supplemental indenture, the REIT must maintain a consolidated EBITDA to consolidated interest
expense ratio of not less than 1.65, consolidated indebtedness to aggregate assets of not more than 65% and minimum adjusted unitholders' equity of $300,000.
As at December 31, 2023 and 2022, the REIT was in compliance with these requirements.
Note 14.
Credit facilities
The REIT's unsecured credit facilities are summarized as follows:
December 31, 2023
December 31, 2022
Borrowing
capacity
Amounts
drawn
Available to
be drawn (1)
Amounts
drawn
Available to
be drawn
Applicable interest rates
Revolving facilities maturing
December 14, 2024
Revolving facility maturing April
$
400,000
$
338,873
$
61,127
$
375,346
$
24,654
29, 2025
280,000
205,808
74,192
226,588
73,412
Non-revolving facility matured
April 3, 2023
Non-revolving facility maturing
February 6, 2024
Non-revolving facility maturing
July 18, 2024
Financing costs
—
—
100,000
100,000
150,000
150,000
(517)
—
—
—
50,000
100,000
150,000
(775)
—
—
—
Total credit facilities
$
930,000
$
794,164
$
135,319
$
901,159
$
98,066
Current portion
588,574
526,424
Non-current portion
$
205,590
$
374,735
BA rate plus 1.70% or
prime plus 0.70% or
adjusted SOFR plus 1.70% or
U.S. base rate plus 0.70%
BA rate plus 1.70% or
prime plus 0.70% or
adjusted SOFR plus 1.70% or
U.S. base rate plus 0.70%
BA rate plus 1.70% or
prime plus 0.70%
BA rate plus 1.70% or
prime plus 0.70%
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, 2023, the covenant did not limit the total borrowing
capacity of the revolving credit facilities.
The unsecured revolving term credit facilities in the aggregate amount of $680,000 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 February 28,
2023, the revolving term credit facilities agreement was amended to reduce the second tranche of the facilities from $300,000 to $280,000 and extend the maturity
date to April 29, 2025. The interest rate on US dollar term advances for all revolving credit facilities was amended to adjusted SOFR plus 1.70%, in place of the
previous LIBOR plus 1.70% 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 on June 28, 2024.
All non-revolving credit facilities can be utilized for general corporate and working capital purposes, property acquisitions and development financing. On January
31, 2023, the REIT entered into an amended agreement to extend the maturity date of the $100,000 non-revolving credit facility to February 6, 2024. On February
28, 2023, the REIT entered into another amended agreement to extend the maturity date of the $150,000 non-revolving credit facility to July 18, 2024 and to
provide for CORRA as the Canadian benchmark replacement rate on all Canadian dollar term advances when the publication of CDOR ceases on June 28, 2024.
On April 3, 2023, the $50,000 non-revolving credit facility was fully repaid upon maturity.
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, 2023 and 2022, the REIT was in compliance with these requirements.
100 | Artis Real Estate Investment Trust
2023 Annual Report | 101
Consolidated Financial StatementsConsolidated Financial Statements
Note 15. Accounts payable and other liabilities
December 31,
December 31,
Accounts payable and accrued liabilities
$
18,735
$
2023
2022
29,473
16,247
7,935
10,163
4,449
—
3,540
—
1,095
6,928
7,262
12,221
4,071
5,717
3,590
25,000
1,042
$
84,566
$
72,902
Distributions payable
Accrued interest
Accrued realty taxes
Tenant installments payable
Derivative instruments (note 34)
Cash-settled unit-based payments liability
Deposits on investment properties held for sale
Other payables and liabilities
Note 16. Unitholders' equity
(a) Common units:
(i) Authorized:
In accordance with the Declaration of Trust, the REIT may issue an unlimited number of common units, with each unit representing an equal undivided
interest in any distributions from the REIT and in the net assets in the event of termination or wind-up of the REIT. All units are of the same class with equal
rights and restrictions.
(ii) Issued and outstanding:
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)
Balance at December 31, 2022
Restricted units redeemed
Units acquired and cancelled through normal course issuer bid
Number of
units
Amount
123,544,536
$
1,865,983
20,974
(8,134,776)
(21,500)
—
115,409,234
15,506
(7,473,874)
230
(123,195)
(325)
9,234
1,751,927
113
(113,456)
Balance at December 31, 2023
107,950,866
$
1,638,584
(1) The common units issued as part of the special distribution declared on December 31, 2022 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.
(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:
Number of units outstanding 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
Number of units outstanding at December 31, 2022
Units acquired and cancelled through normal course issuer bid
Number of units outstanding at December 31, 2023
The carrying value of the REIT's outstanding preferred units are as follows:
Annual distribution rate
Distribution rate reset date
Series A
Series E
Series I
Total
3,295,600
3,699,510
4,965,540
11,960,650
(47,300)
—
(3,248,300)
(92,200)
(2,200)
—
(66,700)
(2,100)
(206,200)
(4,300)
—
(3,248,300)
—
—
—
3,605,110
4,896,740
8,501,850
(357,101)
(226,700)
(583,801)
3,248,009
4,670,040
7,918,049
Series A
5.662%
—
Series E
7.198%
September 30,
2028
Series I
6.993%
April 30, 2028
Total
Carrying value at December 31, 2021
$
78,468
$
89,285
$
120,468
$
288,221
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
Units acquired and cancelled through normal course issuer bid
Carrying value at December 31, 2023
Face value at December 31, 2023
Face value at December 31, 2022
(i) Series A:
(1,126)
—
(77,342)
—
—
(2,226)
(1,617)
(53)
—
87,006
(8,618)
(51)
—
118,800
(5,501)
(4,969)
(104)
(77,342)
205,806
(14,119)
$
$
—
$
78,388
$
113,299
$
191,687
—
—
$
81,200
$
116,751
$
90,128
122,419
197,951
212,547
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 reset on September 30, 2023
at 7.198%. The distribution rate will be reset on September 30, 2028 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, 2028 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, 2028 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, 2033 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 was reset on April 30, 2023 at 6.993% and will be reset on
April 30, 2028 and every five years thereafter at a rate equal to the greater of (i) the sum of the then five-year Government of Canada bond yield and 3.93%
and (ii) 6.00%.
The REIT may redeem the Series I Units on April 30, 2028 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, 2028 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, 2033 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.
102 | Artis Real Estate Investment Trust
2023 Annual Report | 103
Consolidated Financial StatementsConsolidated Financial Statements
Year ended
December 31,
2022
2023
Number of units
Number of units
440,617
170,430
39,736
(151,760)
(21,946)
477,077
9,314
462,891
185,600
31,457
(208,063)
(31,268)
440,617
20,702
(c) Normal course issuer bid:
On December 15, 2023, 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, 2023 as follows:
The REIT's restricted units outstanding are as follows:
Common units
Preferred unit series:
Series E
Series I
Public float
10% of public
float
70,212,966
7,021,296
3,243,009
4,575,540
324,300
457,554
Purchases will be made at market prices through the facilities of the TSX and/or alternative Canadian trading systems and all common units and preferred units
acquired by the REIT under this bid will be cancelled. This bid will remain in effect until the earlier of December 18, 2024, or the date on which the REIT has
purchased the maximum number of units permitted under the bid. During the year ended December 31, 2023, the REIT acquired 7,473,874 common units at
market prices aggregating $54,305, resulting in contributed surplus of $59,151, which was the excess of stated capital over redemption proceeds. During the year
ended December 31, 2023, the REIT also acquired 357,101 and 226,700 Series E and I Units, respectively, at market prices aggregating $10,377, resulting in
contributed surplus of $3,742, which was the excess of stated capital over redemption proceeds.
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.
Balance, beginning of year
Granted
Accrued
Redeemed
Expired
Balance, end of year
Restricted units vested at end of year
(b) Deferred units:
Unit-based compensation expense related to deferred units outstanding under the equity incentive plan for the year ended December 31, 2023 amounted to $221
(2022. $245). 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.
(e) Weighted-average common units:
The REIT's deferred units outstanding are as follows:
Net loss
Adjustment for distributions to preferred unitholders (note 18)
Net loss attributable to common unitholders
Adjustment for restricted units
Adjustment for deferred units
2023
$
(332,068)
$
(13,025)
(345,093)
—
—
Year ended
December 31,
2022
(5,294)
(15,856)
(21,150)
(484)
(1,241)
Diluted net loss income attributable to common unitholders
$
(345,093)
$
(22,875)
The weighted-average number of common units outstanding was as follows:
Basic common units
Effect of dilutive securities:
Restricted units
Deferred units
Diluted common units
Net loss per unit attributable to common unitholders:
Basic
Diluted
111,294,362
117,932,876
—
—
356,076
180,635
111,294,362
118,469,587
$
(3.10)
$
(3.10)
(0.18)
(0.19)
The computation of diluted net loss per unit attributable to common unitholders includes restricted units and deferred units when these instruments are dilutive.
For the year ended December 31, 2023, restricted units and deferred units were anti-dilutive for an aggregate total of 683,559 units. For the year ended
December 31, 2022, 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. The following are outstanding under the equity incentive plan:
(a) Restricted units:
Unit-based compensation expense related to restricted units outstanding under the equity incentive plan for the year ended December 31, 2023 amounted to
$828 (2022, $1,168). 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.
Balance, beginning of year
Granted
Accrued
Balance, end of year
Deferred units vested at end of year
Note 18. Distributions to unitholders
Total distributions declared to unitholders were as follows:
Common unitholders
Special distribution payable in cash
Special distribution payable in units
Preferred unitholders - Series A
Preferred unitholders - Series E
Preferred unitholders - Series I
Year ended
December 31,
2022
2023
Number of units
Number of units
203,430
97,817
21,977
323,224
323,224
133,552
57,244
12,634
203,430
203,430
Year ended
December 31, 2023
Year ended
December 31, 2022
Total
distributions
Distributions
per unit
Total
distributions
Distributions
per unit
$
66,433
$
0.60
$
70,372
$
—
—
66,433
—
4,930
8,095
—
—
0.60
—
1.48
1.67
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
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. The special distributions were payable on December 31, 2022 to unitholders of record at the close of
business on December 31, 2022. 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 year ended December 31, 2022. Immediately following the issuance of common units on December 31, 2022, 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 was recorded as capital contributions.
104 | Artis Real Estate Investment Trust
2023 Annual Report | 105
Consolidated Financial StatementsConsolidated Financial Statements
Note 19.
Revenue
The REIT's revenue is made up of the following significant categories:
Base rent
Operating cost and realty tax recoveries
Parking and other revenue
Tenant inducements amortized to revenue
Straight-line rent adjustments
Lease termination income
Rental revenue from investment properties
Year ended
December 31,
2023
2022
$
219,930
$
126,040
10,789
(24,595)
2,554
1,119
241,234
137,782
10,025
(25,405)
1,379
7,497
$
335,837
$
372,512
Refer to note 30 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:
Note 22.
Corporate expenses
Accounting, legal and consulting
Public company costs (1)
Salaries and benefits (2)
Depreciation of property and equipment
General and administrative
$
$
2023
2,022
967
2,071
1,226
698
$
6,984
$
Year ended
December 31,
2022
1,774
1,116
2,722
1,254
795
7,661
(1) Includes public reporting costs, investor communications costs, and trustee fees and expenses. For the year ended December 31, 2023, trustee fees include fair value gain on unit-based compensation of $579 (2022, fair value gain of $577).
(2) For the year ended December 31, 2023, salaries and benefits include fair value gain on unit-based compensation of $854 (2022, fair value gain of $484).
Note 23.
Strategic review expenses
On August 2, 2023, Artis's Board of Trustees established a Special Committee ("Special Committee") to initiate a strategic review process to consider and evaluate
strategic alternatives that may be available to the REIT to unlock and maximize value for unitholders. The strategic review expenses including legal and advisory
costs were $207 for the year ended December 31, 2023.
December 31,
December 31,
Note 24.
Fair value loss on financial instruments
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 6)
Interest on notes receivable
Other
Note 21.
Interest expense
Interest on mortgages and loans payable
Interest on senior unsecured debentures
Interest on credit facilities
Amortization of above- and below-market mortgages, net
Amortization of financing costs
$
$
2023
188,945
175,409
147,561
124,132
102,203
328,223
2022
226,816
207,145
186,235
154,818
129,051
448,926
$
1,066,473
$
1,352,991
Year ended
December 31,
2022
15,713
1,738
1,493
2023
29,900
$
1,613
846
32,359
$
18,944
$
$
2023
$
48,959
$
17,976
52,318
(778)
3,401
Year ended
December 31,
2022
36,175
17,130
33,851
(896)
3,177
$
121,876
$
89,437
The REIT recorded (losses) gains on the following:
Interest rate swaps
Other derivatives
Equity securities (note 8)
Note 25.
Income taxes
Year ended
December 31,
2022
19,525
777
(41,432)
2023
(9,865)
$
(3)
(31,862)
(41,730)
$
(21,130)
$
$
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, 2023 and 2022.
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 recovery (expense) comprised of:
Current income tax expense
Deferred income tax recovery (expense)
Income tax recovery (expense)
Year ended
December 31,
2022
2023
(601)
$
6,206
(735)
(13,620)
5,605
$
(14,355)
$
$
106 | Artis Real Estate Investment Trust
2023 Annual Report | 107
Consolidated Financial StatementsConsolidated Financial Statements
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
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,
2023
December 31,
2022
2,993
$
287
30
3,310
$
9,323
183
19
9,525
December 31,
2023
December 31,
2022
$
9,525
(6,206)
—
(9)
201
13,620
(4,313)
17
3,310
$
9,525
$
$
$
$
Note 26.
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:
Prepaid expenses and other assets
Accounts receivable and other receivables
Security deposits and prepaid rent
Accounts payable and other liabilities
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.
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, 2023 and 2022:
(c) Other supplemental cash flow information:
(Loss) income before income taxes
Less:
Income distributed and not subject to income tax
(loss) 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 loss (gain)
Other items
Income tax (recovery) expense
2023
$
(337,673)
304,791
(32,882)
50.67 %
(16,661)
(598)
12,370
(716)
Year ended
December 31,
2022
9,061
38,917
47,978
50.67 %
24,310
(494)
(10,419)
958
$
(5,605)
$
14,355
(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, 2023, in connection with the income distributions made by the REIT's US subsidiaries to the Canadian parent entity, withholding
taxes in the amount of $4,401 (2022, $49,632) was paid to the tax authorities and included in distributions.
Interest paid
Interest received
Income taxes paid
Note 27.
Subsidiaries
,
Significant subsidiaries of the REIT are outlined as follows:
Name of entity
AX L.P.
AX Property Management L.P.
Winnipeg Square Leaseco, Inc.
AX QC Ltd.
Artis US Holdings, Inc.
Artis US Holdings II, LLC
Artis US Holdings III, LLC
Artis US Holdings IV, LLC
AX US Management L.P. (formerly AX U.S. Management, Inc.)
Note 28.
Related party transactions
2023
$
24,595
$
(2,554)
1,226
185
(778)
3,401
Year ended
December 31,
2022
25,405
(1,379)
1,254
(721)
(896)
3,177
$
26,075
$
26,840
2023
$
(1,034)
$
400
(1,501)
1,191
Year ended
December 31,
2022
1,569
(1,801)
(7,908)
4,078
$
(944)
$
(4,062)
2023
$
122,287
$
2,343
504
Year ended
December 31,
2022
88,415
3,256
736
Ownership interest
December 31,
December 31,
2023
2022
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
100.00 %
Country
Canada
Canada
Canada
Canada
U.S.
U.S.
U.S.
U.S.
U.S.
108 | Artis Real Estate Investment Trust
2023 Annual Report | 109
Sandpiper Asset Management Inc. ("Sandpiper") is a related party by virtue of being a company under joint control of the President and Chief Executive Officer of
the REIT.
The REIT entered into a Space Sharing Licence Agreement with Sandpiper for use of certain office premises. The agreement has 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.
Consolidated Financial StatementsConsolidated Financial Statements
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 was effective May 17, 2021 and 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,
2022
124
1,231
1,355
2023
127
$
1,064
1,191
$
$
$
Amounts payable to Sandpiper were $171 as at December 31, 2023 (December 31, 2022, $446).
As at December 31, 2023, the REIT had a balance payable to ICE II LP of $987 (December 31, 2022, $738).
Note 29.
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,
2022
6,347
1,413
7,760
2023
4,672
823
5,495
$
$
$
$
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 30.
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.
Revenue
Expenses:
Property operating
Realty taxes
Total operating expenses
Net operating income
Other income (expenses):
Interest and other income
Distribution income from equity securities
Interest expense
Corporate expenses
Strategic review expenses
Equity securities expenses
Net loss from equity accounted investments
Fair value loss on investment properties
Fair value loss on financial instruments
Foreign currency translation gain
Year ended December 31, 2023
Equity
accounted
investment
properties
adjustment (2)
Total
Canada
U.S.
REIT (1)
$
163,505 $
191,487 $
5 $
(19,160) $
335,837
51,466
24,613
53,293
30,104
76,079
83,397
87,426
108,090
112
—
567
—
(17,943)
(36,601)
—
—
—
—
—
—
—
—
(104,692)
(249,410)
—
—
—
—
—
—
—
5
31,724
12,365
(71,936)
(7,000)
(207)
(878)
(54,497)
—
(41,730)
6,932
(4,373)
(3,283)
100,386
51,434
(7,656)
151,820
(11,504)
184,017
(44)
—
4,604
16
—
—
(2,888)
9,816
—
—
—
—
32,359
12,365
(121,876)
(6,984)
(207)
(878)
(57,385)
(344,286)
(41,730)
6,932
(337,673)
5,605
Loss before income taxes
(35,097)
(177,354)
(125,222)
Income tax (expense) recovery
—
(725)
6,330
Net loss
Additions to investment properties, investment properties under
development and investment properties held for sale
Additions to tenant inducements
Additions to leasing commissions
$
$
(35,097) $
(178,079) $
(118,892) $
— $
(332,068)
29,595 $
23,185 $
— $
(711) $
6,151
1,366
33,409
11,002
—
—
(2,291)
(5,240)
52,069
37,269
7,128
Canada
U.S.
REIT
December 31, 2023
Equity
accounted
investment
properties
adjustment (2)
Total
Total assets
Total liabilities
$
1,677,136 $
1,694,198 $
440,481 $
(76,785) $
3,735,030
487,100
563,064
1,045,303
(76,769)
2,018,698
(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 (loss) 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.
110 | Artis Real Estate Investment Trust
2023 Annual Report | 111
Consolidated Financial StatementsConsolidated Financial Statements
Revenue
Expenses:
Property operating
Realty taxes
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
Canada
U.S.
REIT (1)
Equity
accounted
investment
properties
adjustment (2)
Total
$
170,821 $
217,856 $
97 $
(16,262) $
372,512
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
18,387
10,710
(52,665)
(7,661)
(1,890)
39,321
—
(21,130)
(6,683)
—
(736)
(13,636)
(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 (loss) before income taxes
19,796
10,796
(21,514)
Income tax expense
Net income (loss)
Acquisitions of investment properties
Additions to investment properties, investment properties under
development and investment properties held for sale
Additions to tenant inducements
Additions to leasing commissions
$
$
Year ended December 31, 2022
Note 31.
Commitments, contingencies and guarantees
(a) Unconditional sale agreements:
The REIT entered into an unconditional agreement to sell a portfolio comprised of eight retail properties in Calgary, Alberta and Winnipeg, Manitoba for a sale
price of $222,000, with expected closing in the second quarter of 2024.
In addition, the REIT entered into unconditional agreements to sell three office properties in Winnipeg, Manitoba, Greater Toronto Area, Ontario and Greater
Vancouver Area, British Columbia and an industrial property in Greater Houston Area, Texas for sale prices totalling $185,483, with expected closings in the first
and second quarters of 2024.
(b) Contingencies:
The REIT performs an assessment of legal and tax proceedings and claims which have occurred or could occur as a result of ongoing operations. In the opinion of
management and based on the information available, any liability that may arise from such contingencies in excess of existing accruals would not have a material
adverse effect on the consolidated financial statements.
(c) Guarantees:
At December 31, 2023, the REIT has guaranteed certain debt assumed by purchasers in connection with the dispositions of two properties (December 31, 2022,
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, 2023 was $54,741 (December 31, 2022, $41,639), with an estimated weighted-average remaining term of 2.9 years (December 31, 2022, 0.4 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 32.
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,
2023, the ratio of indebtedness to gross book value was 50.9% (December 31, 2022, 48.5%), 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, 2023, the REIT is in compliance with the requirement in the
Declaration of Trust.
19,796 $
10,060 $
(35,150) $
— $
(5,294)
The total managed capital for the REIT is summarized below:
— $
5,219 $
— $
— $
5,219
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
Mortgages and loans payable
Senior unsecured debentures
Credit facilities
Total debt
Unitholders' equity
Note 33.
Risk management
Note
12
13
14
$
December 31,
December 31,
$
2023
911,748
199,630
794,164
1,905,542
1,716,332
2022
864,698
449,091
901,159
2,214,948
2,229,159
$
3,621,874
$
4,444,107
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
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:
(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 (loss) 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.
(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. Portion 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, 2023, the REIT had variable rate debt, including credit facilities, of $1,444,236 (December 31, 2022, $1,434,072). At December
31, 2023, the REIT had entered into interest rate swaps to hedge the interest rate risk associated with $246,897 of variable rate debt, including swaps on
credit facilities (December 31, 2022, $217,136).
112 | Artis Real Estate Investment Trust
2023 Annual Report | 113
Consolidated Financial StatementsConsolidated Financial Statements
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
$
$
11,973
435
12,408
The REIT has variable rate debts linked to Canadian Dollar Offered Rate ("CDOR") or Bankers' Acceptance ("BA") rate, which are subject to the interest rate
benchmark reform. 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. Fallback provisions to switch the reference rate from CDOR to the alternative reference rate CORRA have
been incorporated in the relevant debt agreements.
(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 1.3467 for the year ended December 31, 2023, and the
year-end exchange rate of 1.3226 at December 31, 2023, would have decreased net loss by $30,461 for the year ended December 31, 2023. A $0.10
weakening in the US dollar against the Canadian dollar would have increased other comprehensive loss by approximately $102,411 for the year ended
December 31, 2023. 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 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 $612 during the year ended December 31, 2023 (2022, $1,189).
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 (gain) loss
Balance, end of year
$
$
$
December 31,
December 31,
2023
1,993
316
2,708
$
5,017
$
2022
1,778
517
2,934
5,229
December 31,
December 31,
$
2023
2,187
1,006
(395)
(685)
(11)
2022
1,717
1,452
(264)
(746)
28
$
2,102
$
2,187
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, 2023 including accounts payable and other liabilities, lease liabilities,
credit facilities, senior unsecured debentures and mortgages and loans payable. All debentures are disclosed at their face value.
Total
Less than
1 year
1 - 3 years
4 - 5 years
After 5
years
Accounts payable and other liabilities
$
84,334
$
84,334
$
Lease liabilities
Credit facilities
Senior unsecured debentures
Mortgages and loans payable
916
794,681
200,000
916,321
232
588,873
—
275,348
$
—
290
205,808
200,000
497,404
$
—
310
—
—
—
84
—
—
115,079
28,490
$
1,996,252
$
948,787
$
903,502
$
115,389
$
28,574
Subsequent to December 31, 2023, the $100,000 non-revolving credit facility that matured on February 6, 2024 was extended to February 6, 2026.
Note 34.
Fair value measurements
The REIT uses a three-level hierarchy that reflects the significance of the inputs used in making fair value measurements of its financial instruments and its
investment properties. Level 1 of the fair value hierarchy uses quoted market prices in active markets for identical assets or liabilities to determine the fair value of
assets and liabilities. Level 2 includes valuations using inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
Level 3 valuations are based on inputs for the asset or liability that are not based on observable market data.
There were no transfers of assets or liabilities between hierarchy levels during the years ended December 31, 2023 and 2022.
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
Fair value
hierarchy
Carrying
value
Fair value
Carrying
value
Fair value
December 31, 2023
December 31, 2022
Level 3
Level 3
Level 2
Level 1
Level 2
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
$
2,494,134
$
2,494,134
$
3,156,206
$
3,156,206
947
144,084
152,002
47,170
571,760
1,429
947
136,421
152,002
46,233
571,760
1,429
191,552
114,184
316,768
38,695
335,813
5,885
191,552
113,239
316,768
36,212
335,813
5,885
3,411,526
3,402,926
4,159,103
4,155,675
911,748
199,630
794,164
5,717
904,835
196,141
794,681
5,717
864,698
449,091
901,159
—
842,138
436,609
901,934
—
1,911,259
1,901,374
2,214,948
2,180,681
$
1,500,267
$
1,501,552
$
1,944,155
$
1,974,994
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. The swaps are not
designated in a hedge relationship.
114 | Artis Real Estate Investment Trust
2023 Annual Report | 115
Consolidated Financial StatementsConsolidated Financial Statements
Note 35.
Subsequent events
The following events occurred subsequent to December 31, 2023:
•
•
•
•
•
•
•
•
•
•
The REIT received full repayment of a note receivable in the amount of $10,000.
The REIT disposed of one industrial property, one office property and one retail property all located in Winnipeg, Manitoba for an aggregate sale price of
$38,395.
The REIT acquired an additional 5% interest in Park 8Ninety V, an industrial property located in the Greater Houston Area, Texas, for total consideration of
$12,325 (US$9,132). Prior to the acquisition date, the REIT owned 95% of this investment property and the property was classified as a joint venture.
The REIT entered into an amended agreement to extend the maturity date of the $100,000 non-revolving credit facility to February 6, 2026, at an interest rate
of adjusted CORRA plus 1.70% or prime plus 0.70%.
The REIT repaid a net balance of $46,000 and drew $53,988 (US$40,000) on its revolving term credit facilities.
The REIT received new mortgage financing in the amount of $24,300 on two previously unencumbered retail properties.
The REIT repaid a mortgage on an industrial property in the amount of $40,890 (US$30,296) and a mortgage on a retail property in the amount of $10,274.
The REIT purchased equity securities for $1,745 and sold equity securities for net proceeds of $27,252.
The REIT declared a monthly cash distribution of $0.05 per common unit for the months of January and February 2024.
The REIT declared a quarterly cash distribution of $0.4370625 per Series I Unit for the three months ended January 31, 2024.
Note 36. Approval of financial statements
These consolidated financial statements were approved by the Board of Trustees and authorized for issue on February 29, 2024.
116 | Artis Real Estate Investment Trust
Consolidated Financial Statements T: +1 204 947 1250
F: +1 204 947 0453
www.artisreit.com
600-220 Portage Ave
Winnipeg, MB R3C 0A5
120 | Artis Real Estate Investment Trust