Good morning, ladies and gentlemen, and welcome to the Artis Real Estate Investment Trust Annual General Meeting. This call is being recorded on Thursday, September 24, 2020. I would now like to turn the conference over to Ed Warkentin. Please go ahead.
Good morning, everyone. This is the annual and special meeting of the unitholders of Artis REIT. My name is Edward Warkentin, and I am the board chair. Due to ongoing concerns related to the spread of COVID-19 and the corresponding indoor gathering size restrictions, we encourage unitholders to vote in advance of the meeting rather than appearing in person. This year's meeting is being broadcast via live conference call and is also available via webcast. Welcome to those listening and those who are present here in person, and thank you all for joining us. Today's meeting, as per usual, will consist of two parts. The first part will be the formal business part and will deal with the matters set out in the agenda in the management information circular.
In the second part, Armin Martens, the REIT's CEO, will address the meeting and respond to questions submitted by unitholders via email as provided for in the notice of meeting. For precautionary reasons, we have limited senior management in attendance today. Only our President and CEO, Armin Martens, and our CFO, Jim Green, are present. This meeting of the unitholders of Artis REIT is hereby called to order. As chair of the REIT, I will act as Chair and Secretary of the meeting. Cara Watson will act as recording secretary of the meeting. Jennifer Villarreal of AST Trust Company is appointed to act as scrutineer. All unitholders of record who are present should now be registered with the scrutineer, and all proxies should have now been deposited. If you have not done so, please do so now.
The notice calling this meeting of unitholders was sent to all of the unitholders of record as required 30 days prior to the date of this meeting. An affidavit of mailing indicating a mailing date of August 25, 2020 has been submitted to the chair and will be attached to the minutes of this meeting. The scrutineer has submitted its report on attendance. I'll take a minute now and retrieve that report. The preliminary report on attendance states as follows: We are pleased to report that there are 67 unitholders holding 76,163,591 units represented in person or by proxy at this meeting. This represents 56.13% of the 135,701,321 issued and outstanding units. I declare the scrutineer's preliminary report adopted.
Notice of this meeting having been given as required and a quorum of the units being represented in person or by proxy, I declare that this meeting is duly constituted for the transaction of business. The first item of business is to receive the annual consolidated financial statements of the REIT for the year ended December 31 2019. The 2019 annual financial statements, together with management's discussion and analysis, were sent to all Artis unitholders that requested them. Deloitte LLP, the auditors of the REIT, have certified that, in their opinion, the consolidated financial statements present fairly in all material respects the financial position of Artis Real Estate Investment Trust as at December 31 2019 and December 31 2018, and its financial performance and its cash flows for the years ended December 31 2019 and December 31 2018.
We will take the financial statements and the auditor's report thereon as received and considered. Also, copies of all 2020 financial statements of the REIT released to date are publicly available on SEDAR and on the REIT's website. The next item of business is to fix the number of trustees of the REIT and to elect the persons who will hold office from the close of this meeting and the next annual meeting of unitholders. I have requested that Bruce Jack move and Wayne Townsend second the following motion. Be it resolved that the number of trustees be fixed at 7. Bruce? Bruce has moved. Wayne? Wayne has seconded. Are there any questions on that? There are no questions. All those in favor, please so indicate. Any opposed, indicate. I declare that motion carried. Artis' declaration of trust allows for the appointment of additional trustees.
The board intends to do so as soon as practicable in the months ahead to achieve or exceed compliance with our board diversity and renewal policies. The next item of business is to elect the persons who will hold office as trustees from the close of this meeting until the next annual meeting of unitholders. Before doing so, I would like to introduce those current trustees of Artis who are personally in attendance today. They are Bruce Jack, Armin Martens, Victor Thielmann, Wayne Townsend, and myself, Edward Warkentin. Unfortunately, due to COVID-19 related travel restrictions, two of our trustees are unable to attend the meeting in person and are therefore participating via conference call, namely Ben Rodney in Toronto and Lauren Zucker in New Haven, Connecticut.
We will conduct individual voting for the trustees, but the following resolution will apply to each, namely, be it resolved that the following nominee, who is named in the information circular, be elected as trustee for the ensuing year, to hold office from the close of this meeting until the close of the next annual meeting of unitholders. Number 1, for nominee Bruce Jack, I've asked Vic Thielman to move and Armin Martens to second this motion. Vic has moved and Armin, second. Thank you. All in favor, so indicate. Any opposed? None opposed. I declare that motion carried. Number 2, for nominee Armin Martens, I ask Bruce Jack to move and Wayne Townsend to second this motion. Bruce? Thank you. Wayne? Thank you. All those in favor, please indicate. Any opposed? None opposed. Thank you. I declare that motion carried.
Number three, for nominee Ben Rodney, I ask Armin Martens to move and Wayne Townsend to second this motion. Armin? Thank you. Wayne? Thank you. All those in favor, please indicate. Any opposed? None opposed. Thank you. I declare that motion carried. Number four, for nominee Victor Thielman, I ask Bruce Jack to move and Wayne Townsend to second this motion. Bruce? Thank you. Wayne? Thank you. All those in favor, please indicate. Thank you. Any opposed? None opposed. I declare this motion carried. Number five, for nominee Wayne Townsend, I ask Vic Thielman to move and Armin Martens to second this motion. Vic? Thank you. Armin? Thank you. All those in favor, please indicate. Thank you. Those opposed? None. Thank you. I declare this motion carried. Number six, I ask Armin Martens to move and Wayne Townsend to second the motion for Edward Warkentin. Armin? Thank you. Wayne?
Thank you. All those in favor, please indicate. Any opposed? None opposed. Thank you. I declare that motion carried. For nominee Lauren Zucker, I ask Bruce Jack to move and Armin Martens to second this motion. Bruce? Thank you. Armin? Thank you. All those in favor? Thank you. Any opposed? None opposed. Thank you. I declare this motion carried. The fourth item of business is to consider a resolution reappointing the external auditors of the REIT for the ensuing year and to authorize the trustees to fix the remuneration of the auditors. I requested that Bruce Jack move and Vic Thielman second the following motion. Be it resolved that Deloitte LLP be and is hereby appointed the external auditor of Artis for the ensuing year, and that the trustees be and are hereby authorized to fix the remuneration of the external auditor. Bruce? Thank you. Vic? Thank you.
Any questions on that motion? There are no questions. All those in favor, so indicate. Thank you. Any opposed? None. I declare that motion carried. The next item of business is to consider, in an advisory, non-binding capacity, the approach to executive compensation referenced in the management information circular in part six, executive compensation discussion and analysis. I have requested that Bruce Jack move and Wayne Townsend second the following motion. Be it resolved that on an advisory basis and not to diminish the role and responsibilities of the board, the unitholders accept the approach to executive compensation referred in the management information circular delivered in advance of the 2020 annual meeting of unitholders. Bruce? Thank you. Wayne? Thank you. Any questions? No questions. All those in favor, please indicate. Any opposed? None opposed. Thank you. I declare that motion carried.
The next item of business is to consider a resolution approving the adoption of a fourth amended and restated unitholder rights plan agreement as detailed in the management information circular. I have requested that Bruce Jack move and Armin Martens second the following motion. Be it resolved that, A, the fourth amended and restated unitholders' rights plan agreement to be dated on or about September 24, 2020 be and is hereby approved, which will renew the existing unitholder rights plan of Artis with such non-material amendments as may be approved by the chairman of Artis for a period commencing on the date of this meeting and ending on the date of Artis' annual meeting of unitholders to be held in 2023.
B, any one trustee or officer of Artis be and is hereby authorized and directed to execute and deliver on behalf of Artis all such agreements and documents, and to do all such acts and things, as in the opinion of such trustee or officer may be necessary or desirable to give effect to the foregoing. Bruce? Thank you. Armin?
Second.
Thank you. Any questions on that? No questions. All those in favor, please indicate. Any opposed? None opposed. Thank you. I declare that motion carried. Now this concludes the formal business part of the meeting. I now call on Armin Martens to present and address questions. There have been no questions submitted in advance. However, questions from the floor may still be asked. Armin?
Got that. Okay. Very good. Thank you very much, Ed. Thank you again everyone for joining us today at our 2019 AGM. We're already in the second half of 2020 and might have forgotten, but last year was a good year. We'll talk about it a little bit, and maybe more primarily, and then we'll talk about the present and what we're thinking about for next year as well. First, as always, we'll talk a little bit about Artis REIT, what we are as an investment vehicle, the year behind us and the year we're in and the year ahead. Again, folks, when you're investing in Artis REIT, you're investing in a diversified commercial REIT. We find ourselves saying we're not your typical diversified REIT anymore, we're not your grandmother's diversified REIT anymore. We're primarily industrial and office, and only 17% retail.
Our retail is primarily needs-based retail, very good retail performing well in our office. It's primarily suburban office, which also performing well, particularly in the paradigm shift we're experiencing now. Industrial always performed well, continues to do well. We invest in capital cities. By that we mean provincial capitals or state capitals, and also where universities are based. These are significant drivers of real estate valuations. We have, of course, a very robust yield, a reliable yield, what we call a bulletproof payout ratio of 52%. That's one of the lowest of the commercial REITs. Cash yield is over 6%. Our AFFO yield is double digits. Very good situation. We continue to maintain our investment-grade credit rating, which we feel is a seal of approval for the REIT. We are creating value through development.
I'll talk about that more a little bit later. We have an excellent track record of creating value through our industrial development pipeline that's significant. It can be a relatively high unlevered NOI and very high IRRs. Excuse me. This map shows you what we own and where we own it. Our retail properties are just in Western Canada, which is a good focus for us. Our office and industrial are in Toronto, Winnipeg, Regina, Saskatoon, Calgary, Edmonton, and Vancouver. In the U.S., we're down the central corridor, if you will, we're in Madison, we're in Minneapolis, we're in Denver, we're in Phoenix, and we're in Houston. About 216 properties, about 24 million sq ft, CAD 5.4 billion of book value. Of course, a fully internalized management platform.
This pie chart show you where we were at the end of last year, 2019, how we've moved forward for the first half of this year. On the left, you can see we are at 18% retail, and today we're at 17%. Office was 49%, we brought it down to 48%, we moved industrial up from 33% to 35%. All steps in the right direction in terms of improving our portfolio and our growth profile. This table here shows you the sum of our parts, the office valuation, the retail valuation, and industrial valuation, and how it corresponds to our book value and our net asset value, our NAV per unit. On the left column, you see office is 48% of our NOI. On the far right, you see it's CAD 2.6 billion in value. Retail is 17% of our NOI.
On the far right, you see it's CAD 0.8 billion of our value. Industrial is 35% of our NOI, on the far right, almost CAD 2 billion of our value. Adding up to CAD 5.4 billion in book value, which translates, if you look in the center of that table, the bottom center, that translates to a net asset value of CAD 15.40 per unit. This is important. It's quite higher than what we're trading at and higher than analyst NAV for us, this is a NAV that we continue to deliver on. We've sold over CAD 1 billion in properties in the last two years and continue to sell at a price that corresponds to our NAV of CAD 15.40. It's a pre-tax NAV, we're hitting that number day in and day out. Right now as we speak, we have properties under contract at that same price per unit.
This bar graph will show you then the year behind. You can see 2018 and 2019 being compared there. 2019 was a good year for sure. We increased our FFO and our AFFO per unit by about 8%. On the far right, you can see what the analysts are projecting for this year. We've printed two quarters already, folks. We're into our third quarter now. We feel comfortable with being able to achieve analyst NAV. It's a little bit lower than what we achieved last year, but given that this is a once-in-a-100-year pandemic we're experiencing, these will be very good results for us. If we hit these numbers, I think we can congratulate ourselves, and the market should be very pleased with those kind of results in this kind of an economic environment. In this bar graph, again, this was a good year, 2019.
The red line shows you how Artis performed last year in total unitholder returns. We did deliver 35% total return to our investors last year, and we beat all of our peers. Our peers are the other diversified REITs. Other diversified, that's Cominar, that's H&R, and it's Morguard. We also benchmark ourselves against the TSX REIT Index, which is there in green. That was a very good year for us, but it's behind us now. This year to date, this is a much more sobering year for us. On the next slide, you'll see, and we're still beating our peers by a lot, but we're just barely even with the REIT Index so far. We're optimistic that as we continue to deliver good results one quarter at a time, that this thing will improve for us. It is a different year this year.
I think we all know that. We want to take just the next couple of slides here to remind ourselves of the great quality of properties that we own. We own very good institutional-caliber real estate, and we've classified them into three different categories. About CAD 4 billion in core assets that we want to own, manage and grow long-term. About CAD 200 million in development assets. Again, we have a very good track record of creating value by through greenfield development, primarily industrial. We have non-core assets of about CAD 1 billion. These are assets that we have been selling. We're about three-quarters way through this selling to buy back our units and pay down our debt and streamline the REIT and improve our growth profile. This slide shows an example of some of the core assets we are holding. There's eight different pictures there.
Upper left is our head office for the U.S. It's located in Scottsdale, Arizona, and a LEED platinum building. The next building is a LEED gold building in Winnipeg. It's a TD Bank building. We all know that one. We have a LEED silver building, the Concorde building in Toronto. On the far right, you see a retail property in Calgary that's performing very well. Bottom right and left, you see two industrial buildings that we developed ourselves, one in Minneapolis and one in Toronto. Bottom middle is an office building in Denver and another suburban office building in Minneapolis. All great real estate. This slide gives you an example of some of the completed industrial developments that are in our portfolio. These are Class AA institutional-caliber industrial developments. We've developed them from scratch. We achieved an unlevered yield of about 7%, IRR was over 30%.
Moving forward, you'll see us developing more properties, and we'll be partnering with some institutional investors. These are global players, by the way, who also want to invest with us because they have confidence in our. They've seen what we've done. They know what our track record is. They have confidence in our platform, our ability to create value in the industrial development sector. Stay tuned on that front. Excuse me. I'm going to move to 2020, talk a bit about that. We've heard the expression, what a difference a year makes, and we can also say what a difference a hundred-year pandemic makes. There has been a paradigm shift that's affected all kinds of real estate, ranging from hotels to personal care homes, and then, of course, to the real estate we own.
We own office, retail, and industrial, and there's been a paradigm shift. Look to the right, a couple of blocks on the right of this slide. We make the point, and we've stressed this at our Q2 conference call earlier. We have turned the pandemic corner. It really isn't our pandemic. That applies to a lot of REITs. It's not our pandemic. We've turned the corner. Leasing has improved and is stabilizing. Rent collections are back up to 97%. Income is trending up. Our retail rent collections are at 95%, for goodness sake. That's very good. Our office at 97%, our industrial at 98%. Things are going very well for us, and we're optimistic that our NOI will be increasing and trending up. Our portfolio is the right portfolio. It's a great REIT. Industrial, of course, performing well on both sides of the border. Our retail is needs-based retail.
That's performing well. Our office is primarily suburban, which used to be a bit of a negative. Now it's a big positive because there is a paradigm shift in favor of suburban office performing well. We virtually do not have any tenants subleasing their space in any of our office buildings because of the COVID-19. Back to the paradigm shift. I'll talk a bit about office first. There will be more WFH, which is not a swear acronym. It means work from home. There'll be more work from home, but not so much, because creativity matters, productivity matters, teamwork matters, mentorship matters. So many things matter, and quality of life matters. Not everybody wants to work from home. It's overrated.
We'll see more and more work at the office happen, but we should expect to see office tenants settle down and stabilize at, say, one to two days of working from home per week. We should also expect, in terms of a paradigm shift, office tenants to need more space per employee, and this is what the science tells us. We'll remind the tenants of that as they renew their leases. We should also expect, therefore, demand for suburban office space to increase, and this is happening in real time. As tenants need more space, it's a lot cheaper to rent suburban space. Parking is cheaper, if it's not free, and it's all closer to home. Being closer to home is not such a bad thing in this environment. In that sense, there's been a paradigm shift for office.
Retail, we've had all experienced the shock effect. You can make the case that peak online shopping has transpired because the economy shut down. We're all shuttered down, and maximum online shopping took place. Now we're going the other direction as the economy opens up, and people are shopping more in person. We also like doing that. I think we're close to equilibrium, to see the equilibrium in terms of online shopping and in-person shopping, which will be good for the retail sector, retail landlords to get there instead of taking the long way there. We need to remember that not all retail is bad retail. Needs-based retail will always be in demand because the shopping has to be done in person, and it really is akin to showcase industrial, which is a good asset class.
In terms of industrial real estate, well, we could talk a long time about it. Basically, industrial, the tide is lifting the industrial ship. All asset class of industrial, all forms of industrial real estate are performing well. Lease rates and pricing are right back to pre-COVID times and improving. Industrial has benefited from this paradigm shift as a result of the COVID-19 experience. Perfect. I do want to make mention, as you know, two weeks ago, we announced a strategic initiative, a very major one. Artis wants to spin off its retail portfolio into a pure-play retail REIT. If you look at the right side of this slide, the bar graphs indicate an example of our rationale, what supports our rationale. The red bar graph is Artis. You can see us trading at a discount to a NAV of about 27%.
The blue is diversified. They trade at about 37% average. We're doing better than the diversified, but it's not better enough. The retail, you can see, are trading at a 19% discount, office 15%, industrial trading at a premium. Very good. Artis and other diversified, we are not trading at one of the discounts of this asset class we own. In a minute, I'll show you the price multiple comparisons. It is what it is. It means diversified offer a very good value proposition. Institutional investors, wealth managers, and retail investors all over, Toronto, Montreal, Vancouver, New York, London, Singapore, Hong Kong, we've talked to them all, we've met them, and they've made the case that they do not invest in diversified REITs anymore. There was a time when they did, but they don't want to do that anymore. They will pay more, yes.
They'll pay a higher price multiple, accept a lower discount for pure-play REITs. They do not want diversified REIT to diversify for them. They will do it themselves. There's an old saying, the customer is always right. If that's what the customer wants, if that's what investors want, we have to move in that direction. It's not easy to un-scramble an omelet and do this is something we can do now, and we're doing. We can effectively spin off our retail into a pure-play retail REIT, a year later, we will take the next step if it's the right thing to do. Our retail REIT will be a very good REIT. It'll have about CAD 800 million assets. It'll have a conservative balance sheet. It'll have a conservative payout ratio and a positive cash flow, it'll own very good lease-based retail.
It'll be a very good investment product and yield product. We need not be afraid of this product. It'll be an excellent idea, and it's something we can do now, as I said, and we are moving forward on that. This slide shows you the price multiples of industrial REIT, retail, and office REIT. These are the bottom of the pack, not all of them. We're taking the average of the bottom. This is more data that supports our rationale. This is basically empirical data. You look at what the bottom two trading. These are all good REITs, by the way, except that they're trading at small multiples of the lowest in their sector. If you look at the industrial REITs, the average is the bottom two, which have an average multiple of 14.85. The average of the bottom two retail REITs, average multiple of 6.85.
The average of the bottom three office REITs have an average multiple of 10. If you take those multiples correspondingly, multiply them against Artis' industrial, office, and retail FFO, you get a price today of over CAD 15. That's in these COVID-19 times. If you want to take the worst-case scenario, take the lowest trading REIT, industrial lowest trading retail REIT, lowest trading office REIT, and use those multiples, you would get a price today of CAD 12 for Artis compared to the CAD 8 that we're trading at. Quite a compelling data. Again, it's empirical. It changes every day a little bit, but in principle, this is where it is.
In terms of our balance sheet and our payout ratio, we have a better payout ratio than all of these REITs, and our balance sheet is very comparable, if not better than most of these REITs as well. We're not playing with numbers here. There's a strong case to be made to spinning off into a pure-play REIT and moving forward. That brings me to the end of this part of the presentation. In terms of the retail spin-off, there is an information circular coming out in a couple of weeks, and we'll give everyone more fulsome information. We look forward to obtaining investor support when we have the vote in the middle of November. Again, why invest in Artis? As I said, we have a very sustainable and robust yield. It's a bulletproof payout ratio, very conservative. We have a positive earnings profile that's improving.
We own a great value proposition. We're a great value proposition, and we have a proactive board and management team that's fully committed to advancing the REIT and unlocking value. That brings me to the end of my presentation, Mr. Chairman. I'll turn the floor over to you and/or to the moderator to host questions.
Thanks, Armin. I'm not sure any questions are coming in online. That's not possible. Are there any questions? There's a question from the floor there, Armin. Yeah. A number of questions here.
The first one is, what is the organization? What is your exact split in these asset classes?
That information will come out in the info cert. If you own a unit of Artis REIT today, then tomorrow you own one unit of the retail REIT, another unit of Artis REIT, and the distribution in total will be the same.
Next question for you is, when are you going to sell the 300 multifamily developments and the 330 which you failed to sell? What is going to happen with those properties there?
All support retail in this context, 360, 330, and even 300. From 360 and 330, that will stay with 360 Main, will stay with the office and industrial REIT. The multifamily property definitely will be sold, will be put up for sale next year. We do not want to own a fourth asset class.
People that own the preferred shares in Artis, what's going to happen to those assets in the organization?
The preferred units will stay with Artis REIT. They offer it in industrial REIT, which will still have its investment-grade credit rating, and there will be no changes there. If you stay tuned in the information circular, you'll get more information of what the benefits may have of continuing to be a preferred unit holder.
Artis REIT is going to become smaller in asset value, that's going to cause you problems with any covenants that are applicable as a result.
No, we've double-checked all of that, and it's one of the reasons we're doing this one step at a time. The retail REIT is something, a spin-off we can achieve, but we will not be offside any of our covenants, and we will continue to maintain our investment-grade credit rating. We even are optimistic that our credit rating will improve.
Okay. Thank you.
Thank you.
Any other questions?
Since it's been up. I do want to say thank everybody again, and I want to say thank you to all of our stakeholders, starting with our unit holders, our investors, for their engagement and support. We thank our board of trustees for the corporate governance they provide on behalf of the unit holders and their guidance. Our tenants are the top line of our income. We appreciate our tenants. We consider them to be major stakeholders. We appreciate them all. We thank our financial institutions and the relationships we have with them. The real estate is a very capital-intensive industry. We appreciate all those relationships in that sector. We thank our team of employees. We have over about 220 employees collectively in Canada and the U.S. We have a great team of employees, a great culture.
We have a culture that embraces diversity and inclusion in terms of gender and in terms of demographics, and it's something that comes quite natural to us. We all get along well, and teamwork is number one with us. We do want to thank all of our employees, each and every one of them, for their positive contributions to Artis' success. That's all for me for now. Thank you very much.
Thanks, Armin. Before we conclude, I'd like to continue on that vein and express my appreciation to our trustees. Their dedication, diligence, and engagement were especially demonstrated this past year. As you know, we formed a special committee to review and evaluate strategic alternatives to maximize unit holder value. After a thorough and rigorous process, that undertaking was discontinued as a result of market conditions and uncertainty caused by the COVID-19 pandemic. However, the work and engagement of the board continues, as evidenced by our recent announcement, and as Armin mentioned, of the proposed spinoff of our retail assets into a new REIT, and all these efforts are being undertaken to unlock value for our unit holders. Thank you, trustees. Finally, most importantly, I acknowledge the Artis management and staff for their dedicated performance during this past year.
We acknowledge and appreciate their commitment and focus during these unprecedented times and look forward to the opportunities that lie ahead. On behalf of trustees and unit holders of the REIT and others represented here today, thank you to the Artis team. This then concludes our meeting, and I would ask that Wayne Townsend move and Bruce Jack second a motion to terminate this meeting. Wayne? Thank you, Bruce. Thank you. I declare the meeting terminated. Once again, thank you everyone for attending online and in person.