This Canadian REIT specializes in industrial, office and retail space and has a high concentration of properties in Western Canada as well as the state of Minnesota. This geographical concentration adds risk. Acquisitions have helped Artis REIT raise its revenues in recent years, but the company has shown restraint by cutting back on acquisitions, selling less profitable buildings and upgrading existing properties. This should help the company sustain its high-yielding distribution, currently at 8.2%.
ARTIS REIT (symbol AX.UN on Toronto; www.artisreit.com) owns 25.4 million square feet of industrial (43%), office (43%) and retail (14%) space.
Those properties are in Alberta (19% of the total), Manitoba (15%), Saskatchewan (6%), B.C. (3%), and Ontario (16%), and in Minnesota (26%), Wisconsin (7%) and Arizona (6%).
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Artis continues to modernize its properties in order to attract higher-quality tenants and more-profitable leases.
As part of this plan, the REIT has put seven industrial properties in Minnesota up for sale. It’s also exiting the U.S. retail segment, including selling its seven Minnesota retail properties.
So far this year, Artis has sold seven properties, with a total of 740,000 square feet, for $158.1 million. That includes four properties in Alberta and two in B.C. The REIT also expects to soon sell its Humana building in Phoenix (valued roughly at $20 million U.S.) and its Horizon Heights retail property in Calgary.
Artis intends to put these proceeds toward acquisitions ($300 million, mostly focused on Houston and Minnesota) as well as its development program ($100 million).
The REIT has also identified two properties to re-purpose. Sunridge Pointe is a single-tenant retail property in Calgary and is currently vacant. It will be re-purposed to accommodate a grocery store tenant. The other property, Sierra Place, is an office building in Calgary and will be re-purposed into a 100-suite apartment complex close to public transit.
Dividend Stocks: REIT trades at low multiple to projected cash flow
Mostly due to acquisitions, Artis’s revenues have risen steadily over the last five years—from $290.5 million in 2011 to $549.2 million in 2016.
Cash flow has jumped from $100.0 million in 2011 to $219.5 million in 2016. However, due to many more units outstanding—the result of the REIT’s acquisitions—cash flow per unit rose just 20.0% over that same five-year period. It increased from $1.25 in 2011 to $1.50 for 2016.
In the three months ended June 30, 2017, Artis’s revenue fell 1.4%, to $136.2 million from $138.2 million a year earlier. Cash flow fell slightly, to $54.4 million from $54.7 million. Cash flow per unit fell 5.3%, to $0.36 from $0.38, on more units outstanding.
The trust’s concentration in Western Canada adds risk. Focusing on any one province or region is more speculative than spreading out across the country. That’s especially true in Western Canada, which depends more than other parts of Canada on high commodity prices. However, Artis’s plan to sell off less profitable buildings and cut back on acquisitions in favour of upgrading its existing properties is a positive move.
The REIT’s units currently trade at just 8.9 times Artis’s 2017 forecast cash flow of $1.47 per unit. They also yield a high 8.2%, which appears sustainable.
TSI Network recommendation: Artis REIT is okay to hold.
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REITS do not issue dividends they issue distributions –that difference MUST always be stated and what tax implications there are as well.