Artis posted a 32% increase in funds from operations per unit in the Q4 of 2011 and a 20% jump in full year results. That was enough to take the three month POR down to 81.8% and the full year tally down to 89.3% from 108% and 106.9% in 2010.
The diversified commercial landlord acquired 32 properties in 2011 for $678 million. This increased its total to 163 income-producing properties covering 17 million square feet throughout Canada and the US. It was also the major catalyst for a 48.3% jump in quarterly revenue, and a 50.4% increase in net operating income (NOI).
Artis also boosted the profitability of properties it already owned, lifting Q4 same property NOI by 2.6%. Occupancy ticked up slightly to 96.1% including committed space, from 96% at the end of 2010. Asset and property management is now in house, potentially taking a major bite out of future operating costs. In addition, the REIT both extended the average term of its leases by a year (5.6 years) and reduced the average age of its properties by four years.
The average rate on renewing leases rose 2.7% in Q4, with a tenant retention rate of 78.2%. That was partly offset by a drop in the average rate on new leases, due to a greater number of properties under management, as well as the loss of a major tenant in Vancouver.
The good news is the trend for renewing leases remains positive for 2012, when 9.3% of Artis' portfolio is up for renewal. Another 12.1% comes up in 2013. As of mid March 2012, 56.2% of the 2012 expiring leases and 26.8% of the 2013 expiring leases have been renewed at an average rent increase of 2.7%. And with the remaining lease rates some 4.3% below market rates, we should see at least a similar rate of increase as they're renewed.
Once heavily dependent on Alberta's energy patch, Artis' portfolio quality continues to improve. The top 20 non-government tenants account for just 23.6% of overall revenue, with the largest single tenant just 2.7 percent. Today just 29.3 percent of the portfolio is in Alberta, with 24.1 percent in the U.S., 20.1% in Manitoba, 11.5% in Ontario. 9.3% in British Columbia and the balance in Saskatchewan.
This geographic diversification is complemented by asset-class mix, which is now 41.1% industrial, 37.6% office, and the rest retail. And the current expansion pipeline promises to further broaden Artis' reach and revenue stream, further insulating it from economic ups and downs (yes!).
The REIT's expansion and vastly improved profitability probably still aren't enough to fund a distribution increase in the first half of 2012. But the trend is clearly for higher profitability, setting the stage for a boost possibly later this year.