Artis REIT

I do not own this stock (TSX-AX.UN, OTC-ARESF). It has been mentioned recently as a good REIT to own. A number of people I correspond with mentioned this REIT. However, my first view of it is not positive. Distributions have only increased by 0.57% over the past 5 years. This is extremely low and way below inflation. This is one reason I would not buy this stock.

I looked at the tax information and the distributions are listed as Return of Capital at 100%. Sometimes return of capital is really return of capital. You may be getting a good yield, but if it is return of capital, this would not be a reason to buy this company. In fact it is a reason to avoid it.

Has it made money for its shareholders? Well, over the last 5 years the total return is 7.81% per year with 0.76% per year from capital gain and 7.05% per year from distributions. If you look back to the stocks beginning, the total return is a great 30.96% per year. However, if you go back 7 rather than 8 years to the beginning, the total return is lower at 9.6% per year with 2.12% from capital gain and 7.47% from distributions. The conclusion is that most of the total return is distributions for this stock.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. The consensus recommendations would be a Buy recommendation. The 12 month consensus stock price is $17.80. This implies a total return of 18.30% with 6.77% from Dividends and 11.53% from capital gains. It is obvious that analysts do expect capital gains in the future on this stock.

This blogger gives a map of REIT holdings at here at Dividend Gangster. Avrex Money site has compiled a list of all Canadian REITs. They rank this REIT first. Roger Conrad thinks this stock is a Buy.

There are a few of things that I do not like about this stock. The first is that until just recently, this stock has not made a profit. I tend not to like stocks that do not make a profit. Another thing is the increase in outstanding shares has been really high. Outstanding shares have increased over the past 5 years is 30% per year , and over the past 6 years at 40% per year and even higher if you look further back.

Another thing I do not like is the lack of an increase in distributions. Some analysts feel that there will be a modest increase in distributions in 2014, with a larger one in 2015. However, let's not pretend that anyone can see what the future really holds.

The final thing I do not like is the Dividend Payout Ratios. I do understand the use of FFO and AFFO to judge payout ratios rather than earnings. So that is fine. However, I really do not like the DPRs as they apply to cash flow for this stock. The 5 year median DPR for cash for is 102%. The problem I see with FFO and AFFO is that different people seem to calculate them differently and the calculations seem to change over time. I can go along with looking at DPR for FFO and AFFO instead of earnings, but I cannot go along with looking at them and disregard the DPR for cash flow. See my spreadsheet at ax.htm.

Artis REIT's portfolio is comprised of industrial, retail, and office space in Canada and the United States. Its web site is here Artis.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.