Artis Real Estate Investment Trust
Symbol C : AX.UN
Shares Issued 120,286,507
Close 2013-02-27 C$ 15.90
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Artis REIT's 2012 FFO at $140.14-million
2013-02-28 17:49 ET - News Release
Mr. Armin Martens reports
ARTIS RELEASES FOURTH QUARTER AND 2012 RESULTS: QUARTERLY FFO PER UNIT AT TWO-YEAR HIGH OF $0.34 AND YEAR-OVER-YEAR FFO PER UNIT INCREASES 7.4%
Artis Real Estate Investment Trust has released its financial results and achievements for the three-month and 12-month periods ended Dec. 31, 2012.
"Two thousand twelve was an excellent year for Artis on all fronts. During the course of our first year operating as a fully internalized REIT, we acquired close to $1-billion in assets, thus increasing our revenues, property net operating income and cash flows significantly, while further diversifying our portfolio geographically and by asset class," said Armin Martens, chief executive officer of Artis. "At the same time, we improved virtually all of our key financial metrics, including key per-unit earnings metrics, our payout ratio, overall leverage and interest coverage ratios. As we close 2012 I am pleased to report that Artis is a bigger, better and more financially sound REIT than ever before.
"We are also very pleased to announce that today we qualified for an investment-grade credit rating from DBRS," said Mr. Martens. "We were assigned a rating of BBB (low) and Pfd-3 (low)."
During 2012 the company:
Acquired a total of 58 commercial properties in 2012 for $990.2-million, reaching a GBV (gross book value) of $4.3-billion at Dec. 31, 2012, compared with $3.2-billion at Dec. 31, 2011;
Increased its portfolio to 220 income-producing properties, comprising approximately 23.38 million square feet of leasable area at Dec. 31, 2012;
Raised $378.5-million of equity in four public offerings of units;
Raised $86.3-million of equity in its inaugural offering of Series A preferred units and raised an additional $75-million (U.S.) of equity pursuant to the offering of Series C preferred units, denominated in U.S. dollars, a unique security in the Canadian REIT landscape;
Increased the fair value of income-producing properties by $220.6-million in 2012 as a result of capitalization-rate compression and increases to expected market rents in several portfolio segments;
Internalized both asset and property management of the REIT;
Replaced the $60-million revolving acquisition line of credit that matured on Sept. 28, 2012, with an $80-million revolving credit facility, maturing Sept. 6, 2014;
Decreased its mortgage debt to GBV to 47.3 per cent at Dec. 31, 2012, compared with 50.7 per cent at Dec. 31, 2011; decreased its total debt to GBV to 51.5 per cent, compared with 58.1 per cent at Dec. 31, 2011;
Increased its fourth quarter of 2012 property NOI by 27.8 per cent to $66.7-million when compared with the fourth quarter of 2011; increased its year-over-year property NOI by 31.5 per cent to $240.4-million;
Increased its fourth quarter of 2012 FFO (funds from operations) by 37.3 per cent to $39.4-million when compared with the fourth quarter of 2011; increased its year-over-year FFO by 40.2 per cent to $140.1-million;
Increased its fourth quarter of 2012 FFO per unit by 3 per cent to 34 cents per unit when compared with the fourth quarter of 2011; increased its year-over-year FFO per unit by 7.4 per cent to $1.30 per unit;
Decreased its fourth quarter of 2012 FFO payout ratio to 79.4 per cent at Dec. 31, 2012, compared with 81.8 per cent at the fourth quarter of 2011; decreased its year-over-year FFO payout ratio to 83.1 per cent at Dec. 31, 2012, compared with 89.3 per cent at Dec. 31, 2011;
Reported fourth quarter of 2012 AFFO (adjusted funds from operations) of $33.9-million and AFFO per unit of 30 cents, resulting in an AFFO payout ratio of 90 per cent;
Reported AFFO for the year ended Dec. 31, 2012, of $122.7-million and AFFO per unit of $1.15, resulting in an AFFO payout ratio of 93.9 per cent;
Improved its fourth quarter of 2012 interest coverage ratio to 2.6 times from 2.25 times at the fourth quarter of 2011; improved its year-over-year interest coverage ratio to 2.45 times at Dec. 31, 2012, from 2.21 times at Dec. 31, 2011;
Decreased its weighted average effective rate of interest by 37 basis points to 4.42 per cent at Dec. 31, 2012, compared with 4.79 per cent at Dec. 31, 2011;
Increased its weighted average term to maturity of mortgages and loans payable to 4.4 years at Dec. 31, 2012, compared with four years at Dec. 31, 2011.
SELECTED FINANCIAL INFORMATION
(in thousands of dollars, except per-unit amounts)
Three months ended 12 months ended
Dec. 31, Dec. 31,
2012 2011 2012 2011
Revenue $ 105,036 $ 82,940 $ 372,469 $ 290,512
Property net operating income 66,657 52,161 240,409 182,813
Funds from operations (1) 39,369 28,675 140,146 99,955
Diluted FFO per unit (1) 0.34 0.33 1.30 1.21
Distributions per common unit 0.27 0.27 1.08 1.08
FFO payout ratio (1) 79.4% 81.8% 83.1% 89.3%
(1) Theses amounts are after adjustments for transaction costs, current
tax expense and the loss on equity securities.
DBRS assigns rating of BBB (low) and Pfd-3 (low) to Artis REIT
DBRS has assigned an issuer rating of BBB (low) with a stable trend to Artis REIT. DBRS has also assigned a rating of Pfd-3 (low) with a stable trend to Artis's preferred units.
DBRS highlighted Artis's strengths as being a reasonably scaled REIT with a mid-size portfolio that continues to improve in quality with new property additions, as well as having a well-diversified portfolio by asset type and geography, a diverse tenant roster, including a number of government and other investment-grade tenants, and an improving financial profile and credit metrics.
Introduction of AFFO reporting
AFFO for the year ended Dec. 31, 2012, was $122.7-million (fourth quarter of 2012: $33.9-million). Diluted AFFO per unit for the year ended Dec. 31, 2012, was $1.15 per unit, resulting in an AFFO payout ratio of 93.9 per cent (fourth quarter of 2012: 30 cents per unit, AFFO payout ratio of 90 per cent).
Portfolio acquisition and disposition activity
During 2012, Artis acquired 58 properties.
Artis acquired these commercial properties in Canada and the United States for aggregate purchase prices of $694-million and $288.6-million (U.S.), which represented a weighted average capitalization rate of 6.8 per cent. The purchase prices were settled with cash on hand and from the proceeds of new or assumed mortgage financing, aggregating $377.9-million and $193-million (U.S.). The weighted average interest rate on all the mortgages is equivalent to an annual rate of 3.61 per cent based on LIBOR at Feb. 25, 2013. At acquisition, the weighted average term to maturity on the mortgages was 7.8 years.
Fair value gain on investment properties
Artis recorded a gain on the fair value of investment properties of $220.6-million (fourth quarter of 2012: $60.4-million). The gain is primarily attributed to increases to expected market rents in several portfolio segments, most notably the Calgary office and Fort McMurray retail segments, as well as capitalization-rate compression in the Toronto, Calgary and Winnipeg office segments, and the Calgary industrial and retail segments. The weighted average overall capitalization rates for Artis's Canadian and U.S. property portfolios at Dec. 31, 2012, were 6.32 per cent and 7.13 per cent, respectively. Management notes that there have been numerous significant and high-profile real estate transactions announced in 2013 thus far, which clearly indicates that capitalization-rate compression has continued to be quite strong in a number of Artis's key target markets. Management anticipates that further fair value gains will be likely in 2013.
Liquidity and capital resources
At Dec. 31, 2012, Artis had $54.7-million of cash and cash equivalents on hand and $80-million available on the revolving-term credit facility. Liquidity and capital resources will be impacted by financings, portfolio acquisition activities and debt repayments occurring subsequent to Dec. 31, 2012.
Portfolio operational and leasing results
Portfolio occupancy at Dec. 31, 2012, remained strong at 95.6 per cent (96.3 per cent including commitments on vacant space). Occupancy was 95.3 per cent at Sept. 30, 2012, and 95.1 per cent at Dec. 31, 2011.
In the fourth quarter of 2012, Artis renewed 362,049 square feet of leasable area at a weighted average rate increase of 4.5 per cent. Year to date, the weighted average increase on renewals was 2.6 per cent.
Considering all properties owned at Dec. 31, 2012, 13.5 per cent of the portfolio's leasable area is set to expire in 2013 and 11.4 per cent in 2014. Thus far, 43.4 per cent of leasable area expiring in 2013 has been renewed or committed to new leases. Management estimates that the weighted average market rent for leases expiring in 2013 and 2014 are 6.2 per cent and 7.9 per cent, respectively, above in-place rents. Across the portfolio, management estimates that the weighted average market rents at expiry for the entire portfolio are 8.8 per cent above in-place rents.
The weighted average term to maturity of leases at Dec. 31, 2012, is 4.8 years. Approximately 62 per cent of the REIT's gross revenue is derived from national or government tenants. Government tenants account for 7.7 per cent of the portfolio's gross revenues, with a weighted average lease term to maturity of 5.8 years. The top 20 non-government tenants are well diversified across industry sectors, and include many national, international and publicly listed companies. They collectively account for 19.6 per cent of the portfolio's gross revenues, with a weighted average term to maturity of seven years.
Upcoming webcast and conference call
Interested parties are invited to participate in a conference call with management on Friday, March 1, 2013, at 12 p.m. (CST) (1 p.m. (EST)). In order to participate, please dial 1-416-340-2216 or 1-866-226-1792. You will be required to identify yourself and the organization on whose behalf you are participating.
Alternatively, you may access the simultaneous webcast by following the link from the company's website. Prior to the webcast, you may follow the link to confirm you have the right software and system requirements.
If you cannot participate on March 1, 2013, a replay of the conference call will be available by dialling 1-905-694-9451 or 1-800-408-3053 and entering passcode No. 4290927. The replay will be available until March 15, 2013. The webcast will be archived 24 hours after the end of the conference call and will be accessible for 90 days.
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