This Canadian REIT is doing all the right things.

Artis Reit continues to impress

It’s been a rocky ride for this Canadian REIT.  Just last year Artis Reit cut their distribution in half, saw their stock hit a 52 week low and had investors scrambling to sell.  At the time of the distribution cut, they announced a plan to dispose of some non core assets, do a mass share buyback and explore “other opportunities” in other words – look for potential suitors to purchase the REIT.  In the days following the distribution cut he stock dropped to a low of $8.75.

Investors typically fell into two groups at the time.
Group 1: Sell this tire fire, cut our losses and move on.

Group 2: Continue to hold (or add) at these depressed prices, wait for the turnaround/buyout.  Have faith that management will turn things around.

I was a 100% a group 2 guy.  In fact, I even wrote a detailed post about my take on the dividend cut and the future of Artis exactly 1 year ago.  You can read that article HERE

If you don’t want to read the whole thing, here are a few things I said last November, when the stock had fallen to around 9.00.
“We should see a drop in price right away, but as the dust settles, I think in the long run this will in fact be good for the business.  As much as I enjoyed a juicy 9%+ yield, with the current earnings, it was unsustainable.”

“I’d hold and wait for the price to recover.  If the stock does take a big dip in the next day or two – consider loading up.  Keep in mind the net asset value for this Reit right now is 15.11”

Artis REIT 1 year later

It’s been a year since I wrote about Artis.  Let’s see how things played out…

*Spoiler alert* I was right!

Share Buybacks:  Since announcing their intention to repurchase shares, Artis has repurchased the maximum allowable # of shares allowed under the NCIB; a total of 15,959,760 at an average price of 10.84.  This is at a massive discount to the NAV, and the current stock price.

Payout Ratio: Prior to the distribution cut, Artis had a payout ratio of about 110%, which is of course unsustainable.  Fast forward to today, and Artis has an extremely low (for a REIT) AFFO payout ratio of 52.6%.  Keep in mind even after cutting the distribution in half, Artis still pays a respectable 4.44% yield.

Stock Price: After hitting a low of $8.75 after the distribution cut last November, Artis has continued to climb back up.  Although it is nowhere near it’s NAV of $15.72 it opened today at $12.09.  This represents a gain of almost 40% since last November.

1 Year Stock Price Performance of Artis REIT (AX.UN)

Occupancy: Increased occupancy from 92.7% to 93.3%

FFO & AFFO: Increased both FFO & AFFO by 3% and 4.2% respectively from last quarter.

Buy, Sell or Hold?  What to do…

I will continue to hold.  I’ve already weathered the storm, things continue to look good for the future.  I’d also consider adding if this dips below $11.50 again.  I expect Artis to continue buying back shares until while the stock trades at such a discount to the NAV.

There hasn’t been much news on the “exploring other options” front in a while, although I expect they are still exploring options for a possible buyout.   If Artis does get bought out, I would expect the takeout price to be north of $15.50.  In the meantime, I’ll gladly sit back and collect my 4.4% and DRIP a few more shares each month.
Cheers.