Tuesday, April 9, 2013

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.


  1. Good post. I was checking continuously this blog and I am very impressed!Freight Transport Services

  2. Apparently there was some discussion at Canadian Money Forum on my recent review of Artis REIT. Of course, people having different opinions on stock are why we have buyers and sellers on stock exchanges.

    I must admit Artis REIT seem to be moving to resolve the problems I have pointed out. However, the problems I see create risk. I do not think that shareholders will be properly rewarded with the risk they take in buying this stock. It is not that I do not buy risky stock; it is just I like to feel I have the chance of being appropriately rewarded for my risk. It is not that I think people will not make any money on this stock, it is just I do not think that will make enough to reward them for the risks they take.

    It is too bad that one participant who says he does not agree with my approach does not state what he thinks is the right approach or state why he thinks my approach is wrong. To just say he disagrees adds nothing to the conversation. Sometimes articulating precisely what you disagree with helps people to completely form their own ideas.

  3. Susan, I have posted my take on CMF this morning ( http://canadianmoneyforum.com/showthread.php/1730-What-are-you-buying/page452 ). I want to reiterate that I'm not saying you are wrong, I am simply expressing where our views on the stock differ.

  4. Nothing wrong with different view. I have also posted on CMF now. Who knew I have been a member since 2009.

  5. not to mention this is probably a REIT with some of the lowest quality assets (B, C class buildings in secondary markets). they have entered into the a number of riskier US markets as a way to make accretive acquisitions and to generate more yield in anticpation that most retail investors will turn a blind eye and focus purely on the yield. wouldn't touch this REIT with a 20 ft. pole IMHO.