Artis REIT: Safe and Cheap

Artis units have fallen sharply since my 3/5 article (Artis REIT: Liquidation Sale?).  A financial market crash and an economic recession make it unlikely that the company or significant parts of it can be sold in the near-term, but the strategic initiatives executed over the past year leave Artis well positioned to weather the storm and deliver an attractive return from their current price.

Peer Returns

Artis diversified business model should protect it from weakness in particular sectors and markets, but in March Artis units have underperformed broad US & Canadian indices and also sector returns weighted according to the sources of Artis 4Q19 NOI.

AX Peers

Artis return has been similar to several diversified Canadian REITs (H&R, Morguard, and Brookfield) that have high retail exposure.  Investors are not recognizing the stability provided by Artis Industrial assets which should perform well in the current ecommerce boom.

Markets

Artis asset sale program left it with minimal remaining exposure to the Calgary office market (estimated 2% of NOI at the end of 1Q20).  The company’s Top20 tenants at year-end included only one energy company (Bellatrix).

Artis tenants

Artis units lagged peers that had more assets in hot markets, but those markets could now be at greater risk of a price correction and viral disruption.  Artis largest markets in 4Q19 were:

  • Twin Cities Office 10.7% of NOI
  • Madison Office 9.5% of NOI
  • Twin Cities Industrial 9.2% of NOI
  • Greater Toronto Area Industrial 6.5% of NOI
  • Phoenix Office 6.1% of NOI

These are not exciting, but excitement does not seem as desirable as it did a month ago.

Cash Return

Artis’ dividend was reset in 2018 to $0.54/year, a very conservative 50% of AFFO, and should be sustainable through a recession.  The company has repurchased 391,499 units in the two weeks ending 3/20 after not buying any since September.  Buyback at these levels is highly accretive to the Net Asset Value which was $15.56 at 12/31/19.

Disclosures

The author is a unitholder of Artis REIT.  The author does not make any recommendation regarding any investment in any company mentioned in this article.  Investors are encouraged to check all of the key facts cited here from SEDAR filings and other sources prior to making any investment decisions.

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