Letter to Unitholders

Dear Fellow Artis Unitholders:

I have been looking forward to writing this annual letter and the opportunity to share my thoughts and perspectives on the past year and, more importantly, on the road ahead for Artis and Artis’s owners. Suffice it to say that a lot has happened over the past 12 months, not to mention what we have seen unfold recently in 2023, with a multitude of factors contributing to market pressure and volatility. 2022 was a challenging year and macroeconomic factors had a significant impact on our business, in particular our interest costs and our net asset value (“NAV”) per unit. Today, these same factors, alongside new ones, are putting significant pressure on the trading price of almost every public company or REIT, with very few industries being immune from these effects. None of this has changed the Board and Management’s resolve and commitment to focus on things within our control in order to achieve our primary and fundamental goal of maximizing value for unitholders. This is paramount to the new vision and strategy for Artis that we announced on March 10, 2021 – to become a best-in-class real estate asset management and investment platform focused on growing NAV per unit and distributions for investors through value investing in real estate. At that time, we unveiled the Business Transformation Plan, a detailed strategy which is categorized into three pillars: 1) strengthening the balance sheet through accretive dispositions, disciplined unit buybacks and debt reduction; 2) driving organic growth through development of our assets; and 3) focusing on value investing in mispriced, misunderstood, or mismanaged assets or companies, including REITs. In this letter, I will provide an update on our key accomplishments and challenges in 2022, the status of key initiatives and areas of focus, and the path that lies ahead.

The past year presented both opportunities and challenges for Artis. As the year progressed, we at Artis were pleased to see signs that the pandemic was behind us. Our tenants had endured nearly three years of difficult and volatile times, with continuously changing government restrictions, employees working from home, and a general hesitancy towards visiting or congregating in public places. Supporting our tenants during this period by keeping our buildings safe and open and helping tenants plan and execute their return-to-work arrangements has been a critical focus for us. Our tenants have been adaptable and have shown their resilience during this time. We are pleased to report that our portfolio occupancy is strong at over 90% and we continue to be encouraged by the consistent increase in leasing momentum we experienced throughout the year.

Notwithstanding these reasons for optimism, new economic headwinds emerged for the real estate sector in 2022 and have continued into 2023. The challenging macroeconomic environment and, more specifically, rising interest rates, have weighed negatively on market sentiment towards real estate and impacted our business. We have taken these factors into consideration when decision-making and planning for 2023 to mitigate certain risks, manage our overall interest costs, and remain focused on our fundamental goal of maximizing value for unitholders. We are fortunate to have strong relationships with many financial institutions that have stood by our side throughout the pandemic and beyond. As a result, our access and ability to secure financing has not been hindered and we continue to maintain sufficient liquidity to manage our portfolio and pursue our strategy. In 2022, we renewed the first tranche of our revolving credit facilities in the amount of $400.0 million for an additional two-year term. We also issued Series E senior unsecured debentures for gross proceeds of $200.0 million, bearing interest at a fixed rate of 5.6% for a three-year term. We continue to work diligently on managing upcoming mortgage maturities.

With respect to our financial performance in 2022, one of our key performance indicators (“KPIs”) and what I continue to believe to be our most important financial metric, is NAV per unit. At December 31, 2022, our NAV per unit was $17.38, representing a slight increase over the prior year’s NAV per unit of $17.37. The $0.01 increase in NAV per unit, combined with a regular common unit distribution of $0.60 annually, equates to a total return of 3.5%. This comes on the heels of generating a 20% return in 2021 (when calculated using the same methodology) for our owners. These calculations do not include the special distributions that were declared in 2022 of $0.16 per unit (of which $0.08 was paid in cash and $0.08 was paid in units) and in 2021 of $2.39 per unit (of which $0.32 was paid in cash and $2.07 was paid in units). We are disappointed with the 2022 return metrics and the fact that our units continue to trade at a significant discount to NAV. It is widely known that diversified REITs are out of favour; yet, our operating metrics demonstrate that our diversification strategy has proven its value during one of the most difficult times the sector has seen in years. We remain committed to narrowing the discount between our trading price and NAV per unit and will consider all means and tools available to achieve this. We are also mindful of the two-to-three-year timeline we presented to unitholders in March 2021 for implementation of our Business Transformation Plan. If, over the course of 2023, our units continue to trade at a significant discount, market permitting, we will consider other options available to achieve and fulfill our commitment to Artis’s unitholders.

Last year I discussed the principle of intrinsic value, an investment strategy adopted by Warren Buffett. This strategy has driven much of our decision making since March 2021, with a focus on building value for our owners through disciplined and thoughtful value investing. I continue to believe that following this approach will enable us to grow NAV per unit, which defines the value of Artis’s units despite what the market might otherwise suggest.

As part of our value-investing strategy and capital allocation decision making, we have sold assets over the past two years and have used a portion of the sale proceeds to invest in undervalued companies or REITs. When we invest in other companies or REITs, we are buying a piece of those businesses – or, put a different way, a piece of the real estate portfolio owned by that company or REIT. Once again, we do this because we believe the intrinsic value of that business or portfolio is much higher than the market is giving it credit for and, relative to other investment or capital allocation opportunities, we believe the investment will ultimately produce a better return on our capital in the long run. I will discuss this further in the context of our investments in Cominar Real Estate Investment Trust (“Cominar”), Dream Office Real Estate Investment Trust (“Dream Office”), and First Capital Real Estate Investment Trust (“First Capital”).

Year In Review

We went into 2022 building on the progress we made in 2021, with a continued focus on effective capital allocation, a fundamental component of our vision and strategy. This included the monetization of assets in a measured, patient, and opportunistic manner that then provided the financial resources to continue to reduce debt while also executing on our value-investing strategies. We made good progress with our disposition plan during the first half of 2022, but the second half of the year felt the impact of the significant change in the overall transaction landscape, due largely to the higher interest rate environment. This did not stop us from continuing to focus on what we had planned, based once again on our relentless commitment to ultimately creating value for our owners through growing NAV per unit.

In 2022, we sold four Canadian assets for $94.7 million and 20 U.S. assets for US$311.4 million. These prices are, on balance, in line with the International Financial Reporting Standards (“IFRS”) fair values reported prior to the sales. The bulk of these transactions include dispositions of a few office assets in Canada and the U.S. and the majority of our industrial assets in the Twin Cities Area. This is in line with our strategy of unlocking value in our current portfolio and strategically utilizing that value to pursue investments we believe have the potential to produce above-average risk-adjusted returns for our unitholders over the medium-to-long term. I elaborate further on this point later in this letter.

Below I have summarized our notable investments and capital allocation initiatives in 2022.

Purchases of Equity Securities

As noted, an integral component of our Business Transformation Plan is to focus on value investing by identifying real estate opportunities that are mispriced, misunderstood, or mismanaged. This includes investing in public securities, where there can sometimes be a significant disconnect between the value the market gives a company or REIT and the true underlying NAV per share or unit that the company or REIT is worth. There are some companies or REITs that have exceptional properties in strong markets that we would love to own directly and an indirect investment in these entities through public shares or units is a different and more cost-effective way for us to achieve an ownership interest. Best of all, we get to do so at a discount to what it would ultimately cost us to buy these properties directly – and often this discount is significant.

In 2022, Artis and a consortium of partners closed on the acquisition and privatization of Cominar. This was a milestone transaction in the implementation of our Business Transformation Plan and is an example of the type of investment that we believe will build long-term value for our unitholders. The overall thesis for this investment was very simple and aligns with my earlier comments about intrinsic value. We saw an opportunity to acquire quality, well-located real estate for much less than what it is truly worth. In this instance, the consortium acquired approximately $6.5 billion of real estate for approximately $5.8 billion – a discount of $700 million. We mitigated some of our risk by selling $3.6 billion of real estate at the time of closing, leaving $2.9 billion of assets that cost us $2.2 billion. Since completing the transaction a year ago, we have hired a new CEO, Mario Morroni, and under his leadership, we are further de-risking this investment by monetizing additional assets. While the short-term objective of these additional asset sales has been debt reduction, we expect to see our equity investment produce an attractive, above-average return for Artis and our fellow owners of Cominar.

Together with Sandpiper Group (“Sandpiper”) as joint actors, Artis’s position in Dream Office increased to 14% in 2022. Dream Office’s units trade at an approximately 50% discount to their most recently reported IFRS NAV. Last year, we strategically opted to sell some of our office properties in suburban Toronto and allocate capital to Dream Office. Today, Artis directly owns approximately 5.6 million units of Dream Office. We continue to see value in Dream Office’s portfolio and, more specifically, in the downtown Toronto office market, where Dream Office has a high concentration of well-located assets. In addition, what many investors do not give Dream Office enough credit or value for, is the 26.6 million units of Dream Industrial REIT that Dream Office owns and has on its balance sheet (at December 31, 2022). We believe that the intrinsic value of Dream Office’s assets is much higher than the value the market is assigning to it. We also believe that Michael Cooper, both the CEO and largest unitholder of Dream Office, is committed to maximizing value for unitholders. Mr. Cooper has a number of options available to achieve this and we are confident that, as he has done with other platforms and investments, he will do the same in this instance. This investment is in line with our value-investing strategy and has the potential to create meaningful long-term value for our unitholders.

Similar to our approach in the office segment with Dream Office, on the retail front we opted to begin selling some of our retail properties, primarily located in secondary markets, and allocating capital to First Capital. First Capital owns some of the most attractive, valuable, grocery-anchored real estate in Canada. The unit price of First Capital was trading at a significant discount due to various factors and we saw a compelling opportunity from a capital allocation standpoint. Today, Artis directly owns over 12 million units of First Capital. Together with Sandpiper as joint actors, Artis owns approximately 9% of the outstanding units of First Capital. We look forward to collaborating with the board of First Capital in 2023 as they take steps to unlock and maximize value for all of First Capital’s unitholders.

Normal Course Issuer Bid

We continue to view our normal course issuer bid (“NCIB”) as one of the most powerful tools available to enhance value for our owners. Under the NCIB that expired on December 16, 2021, we purchased 10,160,396 units at a weighted average price of $11.26, representing the maximum number of common units that could be purchased under the applicable term. Under the NCIB that was renewed on December 17, 2021, (and expired December 16, 2022), we purchased 8,778,176 common units at a weighted-average price of $12.39, again representing the maximum number of common units that can be purchased under the applicable term. The aggregate over the two terms, 18,938,572 units, represents 14% of the units outstanding at the beginning of the period. With our units continuing to trade on the market significantly below our NAV per unit, utilizing our NCIB is a low-risk use of capital that increases intrinsic value and benefits our investors by increasing their effective ownership stake in Artis. Going forward, we will continue to use our NCIB as a useful tool to enhance unitholder value.

Development Projects

Our development projects continue to reward our unitholders by increasing the overall value of our portfolio and providing new, steady income streams as lease up occurs. Going into 2022, we had four development projects underway: (i) Park 8Ninety V; (ii) Blaine 35; (iii) Park Lucero East; and (iv) 300 Main. Park 8Ninety V is the fifth and final phase of an industrial development project located in the Houston area in Texas. In 2022, we completed construction of the fifth phase (in which we have a 95% ownership interest). The entire project totals approximately 1.8 million square feet of best-in-class, well-located industrial real estate. We also continue to make excellent progress at Blaine 35, a two-phase industrial project located in the Minneapolis area in Minnesota. Blaine 35 will total approximately 317,400 square feet and is expected to be completed in 2023. Park Lucero East is an industrial development project located in the Phoenix area in Arizona, in which we have a 10% ownership interest and a development management contract in place. This project will comprise approximately 561,000 square feet upon completion and is 100% pre-leased. We anticipate exiting this investment in 2023 and plan to monetize both our equity and carried interest in the project. Lastly, we continue to make progress on the development of 300 Main, a 40-storey residential and commercial project in Winnipeg, Manitoba. In 2022, Earls Kitchen + Bar opened on the main floor of the building. Pre-leasing interest in the apartment suites continues to be strong and we look forward to welcoming our first residential tenants to the property this year.

Core Long-Term Real Estate Holdings

We sold a number of properties last year and, as detailed later in this letter, expect to sell additional properties in 2023. That said, we will continue to own, for the long term, a core portfolio of assets in key markets that we wish to remain invested in. These core properties are expected to: (i) generate strong income and cash flow for Artis and its owners; and (ii) produce healthy rental-rate growth and corresponding bottom-line performance. As a result, from a capital allocation standpoint, we remain committed to maintaining a meaningful allocation of our capital to direct, income-producing real estate that we own.

Balance Sheet and Liquidity

One of our key long-term objectives is to have lower leverage. Due to the delay in closing certain dispositions in 2022, we ended the year with overall leverage of 48.5%, slightly above our desired maximum target of 45.0%. We remain committed to reducing leverage and are confident we can achieve this as we move through 2023. This will also improve overall liquidity, which will provide us with greater financial flexibility going forward.

We ended 2022 with liquidity of $127.2 million. Our plan was to end the year with a higher amount, but this too was impacted by delayed closings of certain dispositions. I anticipate this will be addressed in the first quarter of 2023, as we have made further progress on the disposition front and on the refinancing side of things. Our goal is to ensure we have a healthy liquidity position at all times, both for the sake of being fiscally conservative and to ensure we can be opportunistic in allocating capital to various opportunities that may surface and could contribute meaningfully to NAV per unit so as to ultimately maximize value creation for our unitholders.

The Road Ahead

It is hard to believe that it has already been two years since the announcement of our Business Transformation Plan. Artis is not the company today that it was two years ago. We remain steadfast in our commitment to our strategy and acknowledge that the path to get there may wind as we allow ourselves the flexibility to be opportunistic and to adjust to external market and economic driven factors that are out of our control. We stated from the get-go that our strategy would result in less conventional forms of income and cash flow for Artis, including “lumpy” income from monetizing investments in public securities over time.

In 2023, we plan to close additional property dispositions; however, we expect to maintain at least $3.0 billion of income generating properties. These held assets will have strong growth potential and/or will be situated in core markets. Maintaining an income-producing portfolio is key to our strategy, diversifies our investment portfolio, and generates income (including management fees) that allows us to sustain our distribution to our owners.

Focus on Key Performance Indicators

Our KPIs are NAV per unit, adjusted funds from operations (“AFFO”) per unit, AFFO payout ratio, debt to gross book value, and distribution per unit. Our plan is to use the proceeds from dispositions during the year to reduce debt and to reallocate some of the capital into initiatives that we believe will achieve the highest possible return, ultimately contributing to our most important objective – growing NAV per unit. Our improved liquidity position will allow us to be opportunistic and to pursue investments that we believe are in line with our strategy, including equity securities and real estate acquisitions or developments.

Subsequent to December 31, 2022, we sold one Canadian office property for $14.6 million. We also have six U.S. properties under unconditional contract to sell for US$74.8 million.

Drive Organic Growth

Our organic growth strategy can be categorized into two main objectives: 1) managing our existing portfolio to achieve optimal efficiency and improving the portfolio’s income profile by achieving and extracting the maximum value from each individual asset; and 2) constructing, as an owner or a development manager, state-of-the-art new generation real estate in strategic locations that are expected to generate strong development yields.

As I mentioned earlier in this letter, we have achieved healthy leasing activity across our portfolio. In 2022, 3,690,415 square feet of new leases and renewals were negotiated and signed. Of this, new leases accounted for approximately 1,886,547 square feet and renewals accounted for the remaining 1,803,868 square feet. A significant portion of the new leases that were signed were for space at new development projects, which speaks to the continued demand for new generation industrial product that is well positioned and is designed with features that cater to the target market.

With respect to lease deals that commenced in the year, there were 982,778 square feet of new leases and 1,456,537 square feet of renewals that began in 2022. These renewals were negotiated at a weighted-average rental increase of 4.9% when compared to expiring rents. This is an excellent rate of growth and we are pleased to report that the fourth quarter of 2022 marked our eighth consecutive quarter of positive growth in weighted-average rental rates. The increase in same property net operating income year over year in Canadian dollars was 1.8%. Same property net operating income growth is an important indicator and a metric that we will continue to monitor closely in the quarters ahead.

In addition to driving growth in our existing portfolio, we also have a robust pipeline of industrial development projects under way (as described earlier in this letter) that we expect will be worth much more upon completion than what it cost us to build. These developments result in the creation of new net operating income for our portfolio and should ultimately increase cashflow, funds from operations and AFFO. The difference between development cost and market value for each of these projects creates NAV per unit growth and instant value creation for our unitholders. As we move forward, we will continue to explore opportunities to add additional projects to our development pipeline.

Our sustainability initiatives are another important component of our organic growth strategy. The cost benefits and efficiencies that can be achieved through implementing environmental best practices often translate directly to organic growth. Analysis of key environmental risks (including both physical and transitional climate risks) allows us to be proactive in addressing these risks and make certain we are allocating capital, both with respect to our existing portfolio and our new development projects, to ensure these investments are best positioned to produce sustainable growth for our unitholders over the long term. Tenant engagement is important to guaranteeing a successful business relationship and promoting tenant retention. In 2022, we conducted our first annual tenant satisfaction survey. Engaging with our tenants in this way helps us to understand what we are doing well and where there is room for improvement. The survey was well received and the results have been reviewed at every level of Management and are being taken very seriously. We will publish our Tenant Sustainability Handbook in the coming months, which provides sustainability suggestions and resources for our tenants that can be applied to initial fit outs of new space, retrofits and renovations of existing space, and ongoing day-to-day operations. This guide will be provided to all current and new tenants and will be posted on our “ESG Community” website, a website we created to collaborate with tenants on environmental, social and governance (“ESG”) matters. We are confident that utilizing this and other engagement tools will help us to understand the needs of our tenants so we can all thrive together while protecting our planet. Working together as partners, we have an exciting opportunity to make an impactful and positive change.


At the end of 2022, we renewed our NCIB from December 19, 2022, to December 18, 2023. Under the terms of this bid, we can acquire up to an additional 7,860,942 units during the 12-month period. As noted earlier, we continue to view our NCIB as a very valuable tool to enhance unitholder value and will continue using the NCIB aggressively given our units trade at a significant discount to our NAV.

Environmental, Social and Governance

In addition to our focus on sustainability initiatives at the property level, our Board continues to view Environmental, Social and Governance initiatives throughout the organization as a high priority for Artis. As we committed to in our Business Transformation Plan, our goal is to make ESG a focal point and to establish a company-wide ESG-minded culture at Artis. As part of our ESG strategy, we are committed to creating a culture that values and prioritizes diversity, equity and inclusion. I can say wholeheartedly that, over the last two years, we have taken our commitment to ESG very seriously. Under the stewardship of the Governance, Nominating and Compensation Committee of our Board of Trustees and through execution by our internal ESG Committee, we have taken significant strides towards establishing Artis as a leader in ESG best practices. Through our sustainability initiatives, we are confident we will reduce our environmental impact, make a positive change in the communities in which we operate, strengthen our business, and create a culture that allows us to attract, retain and develop the best talent. There is so much more to do in this ever-evolving field and there will always be opportunities for improvement, but we are happy with the progress we have made thus far and look forward to sharing more information on our ESG initiatives and progress in our 2022 ESG Report.

Final Thoughts and Our Annual General Meeting

We accomplished a great deal in 2022 and, as I stated at the outset, we will continue to focus on executing the Plan introduced in March 2021. At the same time, it is not lost on me, the Board or Management that Artis’s unit price continues to trade at a significant discount to its NAV per unit. In simple terms, this is not acceptable. We will continue to use all near-term levers available to us to improve this. As we move further into the third year of implementing our new vision and strategy, if the discount to our trading price relative to NAV per unit does not close significantly, we will consider every option available to fulfill our goal of maximizing value for unitholders. We will not let our unitholders down.

When we announced a new vision and strategy for Artis two years ago, some people were excited about our unconventional Plan; however, others were hesitant, if not outright opposed. We knew we would need to earn people’s trust through successful execution and results. External factors have made the past year difficult, but history has demonstrated that there will always be ebbs and flows, periods of time when the economy provides tail winds for our business and periods when it creates headwinds. We continue to focus on the big picture. From our perspective, this means focusing on the value of our units, not the price of our units. We are confident that with the execution of our Plan, clear communication and demonstrating a track record of success, we will be able to narrow the gap between the value and price of our units, and our owners will be rewarded. Rest assured, we will do our best to stay true to the commitment we presented to our owners in March 2021.

Thank you for trusting us with your capital. We look forward to the rest of 2023 with determination and confidence and are optimistic about navigating the road that lies ahead.

In closing, I invite all of our stakeholders to join us in person at our next annual general meeting scheduled for 2:00 pm ET on June 8, 2023, at TMX Market Centre in Toronto, Ontario. I look forward to seeing you there.


Samir Manji

President and Chief Executive Officer


Disclaimer and Forward-Looking Statements

All figures are presented in Canadian dollars unless otherwise noted. The information in this Annual Report should be read in conjunction with the REIT’s audited annual consolidated financial statements and management’s discussion and analysis for the years ended December 31, 2022, 2021 and 2020. These documents are available on SEDAR at www.sedar.com or on Artis’s website at www.artisreit.com.

Certain statements contained in this Annual Report are “forward-looking statements” within the meaning of applicable securities laws. Forward-looking statements reflect management’s expectations regarding the future growth, results of operations, performance, prospects and opportunities of Artis. Without limiting the foregoing, the words “expects”, “anticipates”, “intends”, “estimates”, “projects”, and similar expressions are intended to identify forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements.

All statements other than statements of historical fact contained or incorporated by reference herein may be deemed to be forward-looking statements including, without limitation, statements regarding the timing and amount of distributions and the future financial position, business strategy, potential acquisitions and dispositions, plans and objectives of Artis.

Such forward-looking statements reflect management’s current beliefs and are based on information currently available to management. Artis cannot assure investors that actual results will be consistent with any forward-looking statements and, other than as required by applicable law, Artis assumes no obligation to update or revise such forward-looking statements to reflect actual events or new circumstances. All forward-looking statements contained in this Annual Report are qualified by this cautionary statement.

Forward-looking statements may involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from the results expressed or implied in forward-looking statements including risks relating to the COVID-19 pandemic, real property ownership, geographic concentration, current economic conditions, strategic initiatives, debt financing, interest rate fluctuations, 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 the REIT’s units, changes in legislation and investment eligibility, availability of cash flow, fluctuations in cash distributions, the nature of units, legal rights attaching to units, preferred units, debentures, dilution, unitholder liability, failure to obtain additional financing, potential conflicts of interest, developments, and trustees. Refer to the section entitled “Risks and Uncertainties” in the REIT’s 2022 Annual Management’s Discussion and Analysis and the section entitled “Risk Factors” in the REIT’s Annual Information Form dated February 28, 2023, for additional information regarding risks and uncertainties.

Notice with Respect to Non-GAAP & Supplementary Financial Measures Disclosure

In addition to reported International Financial Reporting Standards (“IFRS”) measures, certain non-GAAP and supplementary financial measures are commonly used by Canadian real estate investment trusts as an indicator of financial performance. “GAAP” means the generally accepted accounting principles described by the CPA Canada Handbook – Accounting, which are applicable as at the date on which any calculation using GAAP is to be made. Artis applies IFRS, which is the section of GAAP applicable to publicly accountable enterprises.

Non-GAAP measures and ratios include Same Property Net Operating Income (“Same Property NOI”), Funds From Operations (“FFO”), Adjusted Funds from Operations (“AFFO”), FFO per Unit, AFFO per Unit, FFO Payout Ratio, AFFO Payout Ratio, Net Asset Value (“NAV”), NAV per Unit, Gross Book Value (“GBV”), Total Debt to GBV, Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”), Adjusted EBITDA Interest Coverage Ratio and Total Debt to Adjusted EBITDA.

Management believes that these measures are helpful to investors because they are widely recognized measures of Artis’s performance and provide a relevant basis for comparison among real estate entities.

These non-GAAP and supplementary financial measures are not defined under IFRS and are not intended to represent financial performance, financial position or cash flows for the period, nor should any of these measures be viewed as an alternative to net income, cash flow from operations or other measures of financial performance calculated in accordance with IFRS. For a full description of these measures and a reconciliation to the most directly comparable measure calculated in accordance with IFRS, please refer to the “Notice with Respect to Non-GAAP and Supplementary Financial Measures Disclosure” section in the REIT’s 2022 Annual Management’s Discussion and Analysis.