Artis REIT

I do not own this stock of Artis REIT (TSX-AX.UN, OTC-ARESF). Early in 2013, this company was mentioned 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 REIT has not been around very long having only been listed on the TSX since 2004. It was listed as Westfield REIT. It was rebranded as Artis REIT in 2007. In a lot of cases I do not have a full 10 years of data.

Dividends were increased a bit at first at just over 1% in 2008 and 2009. However, they have been flat ever since. The problem is that they had quite a few years of earnings losses and only started to have positive earnings in 2011. The Dividend Payout Ratio for 2013 was 95% for EPS and 72% for CFPS. They are expected to be even higher in 2014 at 140% and 186% respectively.

Analysts do not expect them to raise their dividends anytime soon. I do not invest in companies that do not raise their dividends and so I would not invest in this company. For REIT I expect dividends to go up around the rate of inflation as dividend yield are generally quite high. A lot of REITs do not rise dividends every year, but they do increase them. For this REIT the dividend yield is currently at 6.83%.

Of course because they are a REIT, analysts look at Dividend Payout Ratios for Adjusted Funds from Operations (AFFO) and Funds from Operations (FFO). The DPR for AFFO for 2013 was at 86% and for FFO was at 74%.

Investors have been earning money from this stock. The 5 and 10 year total return to date is 15.25% and 21.80% per year. The portion of this total return attributable to distributions is at 8.44% and 11.89% per year. The portion of this total return attributable to capital gains is at 6.81% and 9.91% per year. A problem is that the stock price has currently stalled and earnings are expected to drop this year by over 30%.

Outstanding shares have increased by 31% and 70% per year over the past 5 and 9 years. Revenues have grown nicely, but Revenue per Share has not. Cash Flow has grown, but CFPS has not. You cannot measure growth in earnings when earnings are negative (or you have earning losses).

Revenues have grown at 27% and 111% per year over the past 5 and 10 years. Revenue per Share has decreased by 4% and increased by 24% per year over the past 5 and 10 years. If you look at 5 year running averages for RPS, you get growth over the past 5 years at 5% per year.

AFFO has grown at 7.6% per year over the past 3 years. The AFFO has only been used for a few years. The FFO has declined by 2.4% and increased by 12% per year over the past 5 and 8 years. If you look at 5 year running averages over the past 4 years, the increase in FFO is up 1% per year.

Cash Flow has grown at 37% per year over the past 5 and 9 years. CFPS has grown at 4.2% and 32% per year over the past 5 and 9 years. If you look at 5 year running averages over the past 5 years, CFPS has grown at 10% per year.

There has not been much in the way of Return on Equity because of earnings losses. The ROE for 2013 was just 7.7%. The ROE on comprehensive income was a bit better at 8.8%. So what earnings they have seem to be solid.

Another place where this company falls short is with debt ratios, specifically, the Liquidity Ratio which for 2013 was at 0.21. When this ratio is less than 1.00, it means that the current assets cannot cover the current liabilities. If you take off the current portion of the longer term debt the Liquidity Ratio is 0.82. If you add in the cash flow after distributions, the ratio is 1.42. The Debt Ratio is good at 1.97. The Leverage and Debt/Equity Ratios are fine at 2.03 and 1.03.

Sound bit for Twitter and StockTwits is: REIT, but not dividend growth stock. See my spreadsheet at ax.htm.

This is the first of two parts. The second part will be posted on Monday, July 21, 2014 and will be available here. The first part talks about the stock and the second part talks about the stock price.

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

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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