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. It is also not a dividend growth stock.
When I was updating my spreadsheet, I noticed was that there is a lot of insider buying. The Net Insider Buying (NIB) is at 0.14% of market cap over the past year. You would expect it to be around 0.01% or at the most 0.02%. The other thing is that this company just cut their dividends (or distributions) by 50%.
Most past yields are all good (5% and higher). The current yield, after the recent cut in dividends is lower in the moderate range (2% to 4% ranges) at 4.62%. This is lower than the yield has been in the past. The 5, 10 and historical dividend yields are 8.21%, 8.28% and 8.02%.
There were a few increases to the dividend before 2010 and none since. The most recent change is a dividend cut of 50%. If you look at dividends to date rather than to 2018, they are much worse at -12.94%, -6.70% and -2.28% for durations of 5, 10 and 14 years.
The Dividend Payout Ratios are fine. When you area dealing with REITs the Distribution Payout Ratios are based on Funds From Operations (FFO) or Adjusted Funds From Operations (AFFO). The DPR for FFO for 2018 is 83% with 5 year coverage at 73%. The DPR for AFFO for 2018 is 113% with 5 year coverage at 91%. The DPR for AFFO for 2018 is too high but the 5 year coverage is fine. This DPR is expected to fall in 2019.
Debt Ratios are fine, but the Liquidity Ratio is a vulnerability. The Long Term Debt/Market Cap for 2018 is 0.92. The Liquidity Ratio appears low at first at 0.63. However, if you add in Cash Flow after the distribution and also add back in the current portion of the long term debt you get to 1.64. It is a vulnerability. You need to be assured that the company can rollover any current debt due each year. The Debt Ratio for 2018 is good at 1.92. The Leverage and Debt/Equity Ratios are fine at 2.09 and 1.09.
The Total Return per year is shown below for years of 5 to 14 to the end of 2018. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
|From||Years||Div. Gth||Tot Ret||Cap Gain||Div.|
The 5 year low, median, and high median Price/Earnings per Share Ratios are 10.06, 11.35 and 12.30. The corresponding 10 year ratios are 6.50, 7.10 and 7.70. The corresponding historical ratios are 3.18, 3.59 and 4.01. If you eyeball the ratios, they are all over the place and have negative values also. That is probably why they are low. The current P/E Ratio is 16.24 based on a stock price of $11.24 and last 12 months EPS of 0.72. This stock price testing suggests that the stock price is relatively expensive.
Since this is a REIT, we should us P/AFFO. The 5 year ratios are 9.62, 12.27 and 13.30. The corresponding 10 year ratios are 10.15, 12.15 and 13.34. The current P/AFFO Ratio is 11.57 based on 2019 AFFO estimate of 1.01 and a stock price of 11.24. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $15.91. The 10 year low, median, and high median Price/Graham Price Ratios are 0.58, 0.66 and 0.76. The current P/GP Ratio is 0.73 based on a stock price of $11.24. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Book Value per Share Ratio of 0.88. The current P/B ratio is 0.75 based on a stock price of $11.24, Book Value of $2,260M, and Book Value per Share of $15.62. The current P/B Ratio is some 16% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get an historical median dividend yield of 8.02%. The current yield is 4.62% based on dividends of $0.54 and a stock price of $11.24. The current yield is some 42% above the historical median yield. This stock price testing suggests that the stock price is relatively expensive.
If you cut the historical yield in half (because dividends have been cut by 50%), you get an historical yield of 4.01% and this is 15.20 below current yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The 10 year median Price/Sales (Revenue) Ratio is 3.90. The current P/S Ratio is 3.21 based on 2019 Revenue estimate of $527M, Revenue per share of $3.64 and a stock price of $11.24. The current ratio is 18% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Results of stock price testing is that the stock price is probably relatively reasonable. The best tests here is the P/S Ratio and P/B Ratio tests. Both these show the stock as relatively reasonable and below the median. Since this is a REIT, the P/E Ratio tests probably tests us nothing. The P/AFFO Ratio tests shows the same results as the P/S Ratio and P/B Ratio tests.
Is it a good company at a reasonable price? It is discouraging when a stock cuts their distributions. They are making changes to the company and insiders are buying, but the last couple of years has not been profitable for the company nor the shareholders. Even when it was profitable to shareholders, most of the profit was in distributions. Capital gains has been low to non-existent and with the cut in distributions, Total Return will suffer in the future. It would not be my favourite REIT, but it is at a reasonable price.
When I look at analysts’ recommendations, I find Strong Buy (1), Buy (3) and Hold (6). The consensus would be a Buy. The 12 month stock price is $12.69. This implies a total return of 13.17% with 8.55% from capital gains and 4.62% from dividends based on a current price of $11.69.
See what analysts are saying on Stock Chase. They have various views. One analyst says it is complicated because they have cut their distributions. Ryan Vanzo on Motley Fool says stocks exposures you to a diversified portfolio that isn’t dependent on one particular region, industry, or customer. A writer on Simply Wall Street talks about insider buying for this stock. A writer on Simply Wall Street thinks this stock is undervalued. A gazette writer on Addison Gazette says this company’s balance sheet is of a median strength.
Artis Real Estate Investment Trust is an unincorporated closed-end REIT based in Canada. Artis REIT's portfolio comprises properties located in Central and Western Canada and select markets throughout the United States. The properties are divided into three categories: office, retail, and industrial. Its web site is here Artis REIT.
The last stock I wrote about was about was TMX Group Ltd (TSX-X, OTC-TMXXF) ... learn more. The next stock I will write about will be Atlantic Power Corp (TSX-ATP, NYSE-AT) ... learn more on Monday, July 22. 2019 around 5 pm.
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