Artis REIT is marketing the remaining six buildings in its Calgary office portfolio. (Courtesy Artis REIT)

Artis Real Estate Investment Trust is selling the remainder of its Calgary office portfolio which includes six buildings comprising close to 700,000 square feet.

It is part of the REIT’s overall strategy of divesting Calgary office property, which began in late 2016, to concentrate on other real estate assets.

At its peak in mid to late 2016, just prior to its shift in its strategy, Artis (AX-UN-T) owned in excess of 2.5 million square feet of office property in Calgary across approximately 20 properties.

“Artis pursued a significant portfolio shift away from Calgary office to prioritize capital allocation to higher-growth strategies, particularly emphasizing the U.S.A. industrial development program,” said Corey Colville, head of strategy, real estate, at Artis.

The Calgary portfolio for sale includes:

– Canadian Centre, 156,772 square feet;
– 417 14th Street building, 17,517 square feet;
– Alex Building, 61,847 square feet;
– Campana Place, 49,123 square feet;
– Heritage Square, 315,152 square feet;
– and Hillhurst Building, 63,394 square feet.

Colville said the present occupancy of the Calgary office portfolio is about 70 per cent.

“Strategic decision” to exit Calgary office sector

“We still have a very robust portfolio of retail and industrial properties in Calgary, but we’ve made this strategic decision to market our remaining Calgary office buildings,” said Colville.

Artis has five retail properties in Calgary of over 343,000 square feet and six industrial properties with over 362,000 square feet.

“Over the past trailing few years, Artis has marketed and successfully transacted on much of their Calgary office portfolio. These remaining six assets, we’re of the view that there’s a terrific opportunity for the market to capitalize on a substantial discount (to) replacement cost and create significant value,” said Colville.

“We’ve had interest from owner/user investors, from repositioning and converter investors as well as office investors.

“With these properties, we think with the amount of potential there’s just fundamentally an opportunity in the market for local investors to capitalize on.”

Colville said Artis has held some of the Calgary office assets for more than a decade. On balance, they’ve been longer-tenured assets for Artis.

“At the peak, (Calgary office) was a really significant component of Artis’ total valuation. At this point of time, the remaining assets in relation to our gross book value is actually quite immaterial and the contributory cash flows from them,” he said.

“We’re looking to focus our efforts in a more strategic way. We think that we’ll be very dominant long-term and competitive landlords and we don’t feel that this is going to be the case now that we’ve reduced our position so much in the Calgary office market.”

Downtown vacancy about 30 per cent

Corey Colville, head of strategy, real estate, at Artis REIT. (Courtesy Artis)

Calgary’s office market has struggled for the past seven years since the collapse of oil prices in late 2014. That led to massive layoffs, particularly in the city core where many energy companies had their corporate head offices. Obviously, fewer people has meant less need for office space throughout the city.

The downtown Calgary office vacancy rate has hovered around the 30 per cent mark for some time.

“You know, we’re not quite as pessimistic as some of the news headlines would indicate. Naturally, and quite obviously, there’s been a struggle in the market, but we are confident that Calgary is one of the most important cities in Canada and that Canada is a phenomenal country to invest in,” said Colville.

“In time, we believe that Calgary will make a strong resurgence and comeback and we believe that Calgary will benefit from the wave of immigration to come and the rejuvenation to the energy markets over time.”

The Artis REIT property portfolio

In Q2 2016, Artis had 260 properties of about 26.6 million square feet overall; 191 properties in Canada with about 17.1 million square feet and 69 properties in the U.S.A. with about 9.5 million square feet.

At that time, it owned 73 properties in Alberta with about 6.7 million square feet. By the end of Q2 2021, that number had decreased to 40 properties with about 2.7 million square feet.

At the end of Q2 2021, Artis had 133 Canadian properties with about 10.4 million square feet and 70 U.S. properties with about 11.6 million square feet for an overall total of 203 properties and 22 million square feet.

The REIT’s portfolio at the end of the second quarter was 42.7 per cent office, 38.2 per cent industrial and 19.1 per cent retail.

Its overall occupancy was 92.3 per cent in Canada; 97.7 per cent for industrial, 83.3 per cent in office and 90.8 per cent in retail. In the U.S., its overall occupancy was 91.8 per cent comprising 94.3 per cent for industrial and 87.4 per cent for office.

Colville said the third quarter will feature a further and material shift of the portfolio following the sale of 27 of 28 of its Greater Toronto Area industrial properties. The 28th property is also for sale.

Other recent portfolio activity

– Acquired a parcel of industrial development land in Minnesota’s Twin Cities Area, for US$1.5 million.

– Disposed of an office property in Calgary, three retail properties in Regina  and a portion of a retail property in Fort McMurray, Alta., for an aggregate price of $62 million.

– On June 30, Artis entered into an agreement to sell the GTA Industrial Portfolio, comprising 28 industrial properties located in the Greater Toronto Area. On July 15, the REIT closed on 26 of the 28 properties for $696.7 million. One of the remaining properties is expected to close in Q3 2021 and generate gross proceeds of $26.7 million. The remaining property will be actively marketed for sale.

– Subsequent to June 30, it also disposed of the King Edward industrial portfolio, comprised of two properties in Winnipeg, for $3.2 million.