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Artis REIT: Industrial Portfolio Is Exceptionally Undervalued

Mar. 03, 2020 12:11 AM ETArtis Real Est In Tr (ARESF), AX.UN:CA19 Comments


  • Artis REIT currently yields 4.5%.
  • The diversified portfolio and low payout ratio make it one of the safest 4% plus yields out there.
  • The industrial portfolio is likely being drastically undervalued by Artis on the books and the company could be bought out at a price in excess of $16.00/share.
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Note: All amounts presented are in Canadian dollars.

Artis REIT (OTC:ARESF) is a smaller REIT where we have been rather bullish. While we sold out of most positions in the Canadian REIT space, Artis is one where we chose to hang on. The last time we covered it, we left with the message that the real estate company has decent upside alongside its modest yield.

Our 12-month target price for this is $15.00/share as we believe the stock deserves to trade at no more than a 5% discount to its NAV. This discount we believe should be there due to the high vacancies in the Calgary office portfolio. We have reduced our discount to NAV from previous levels as Artis has whittled down Calgary portfolio to under 6% of NOI and also because we believe inflationary trends should help this REIT's portfolio. We like the shares here, and although the yield is small, the potential upside is rather high.

Source: Seeking Alpha

Although the stock has since produced a small alpha versus the broader indices and the Canadian real estate ETF (XRE:TSX), it has still underperformed our expectations.

With Q4-2019 results out, we decided to see if this was still worth playing or whether the freshly battered Canadian REIT landscape offered better values.


Artis had lower revenues and lower Net Operating Income for this quarter. That was expected as it had been actively pruning its portfolio. However, the combination of its dispositions and large buybacks at a big discount to NAV produced a very strong increase in funds from operations (FFO) and adjusted funds from operations (AFFO).

Source: Artis Q4-2019 Financials Press Release

AFFO this quarter was at 27 cents, a rate that matched its old distribution rate of 27 cents a quarter. Artis rapidly achieved its objectives

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This article was written by

Trapping Value profile picture

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Analyst’s Disclosure: I am/we are long ARESF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (19)

galicianova profile picture
TV, how do you feel these days about ARTIS and its preferred like, say, AX-E ?
waldipup profile picture
Can't recoup Canadian witholdings . Non ret. acc. and 2216 does not allow tax credits - only mostly "carryover" , which can never be recouped if continuing to invest in foreigns .
Sorry to be changing subject but in terms of Canadian dividends, do you think AG growth International (AFN on the TSX) will be able to afford its rather fanciful dividend for much longer? Seems to me the payout ratio is out of this world.
Rod Willmot profile picture
Good work, TV. This is a long-term hold for me that just keeps getting better and better. Now you've got me thinking I should add a little more!
Philipsonh profile picture
Dear Author
A so-called INDUSTRIAL Reit does NOT hold office and retail properties. I read as far as the word 'office' and stopped to just write this short comment. Thanks.
Trapping Value profile picture
Dear commenter,
Where did you see me mention those two words together?
You probably should have read the whole article...
Philipsonh profile picture
The headline IMPLIES the Reit is industrial. No big deal, sir. I am not venturing outside the uSa at this point. thanks
Buyers are already sniffing around. And as you know TV, if Rai Sahi is interested in buying the real estate is cheap.

Too small with limited liquidity as it is trading less than 3,000 avg. shares/day..
Trapping Value profile picture
As always, buy on TSX or buy by paying a 3-5 cent premium over converted price from TSX and you will get filled.
thebellsareringing profile picture
Not sure if I want it my IRA. I do think it is low yield I assume the potential buy out is the hook?
optomos profile picture
I would say so. In January someone sold 2,492,000 shares, but other than that they have been purchasing, albeit at smaller quantities.
anderiffick profile picture
One more stock written about on SA that I can't find on Robinhood. Any ideas about how I can buy?
optomos profile picture
Its available on brokers such as TD Ameritrade & ETrade
mREITs profile picture
You are not alone mate. I can't find this stock on Wealthsimple Trade either. I could be wrong, just guessing here, but probably the limiting issue is that the volume is TOO LOW, so it's de-listed from my platform. The only way I own this is through an ETF (as a work-around) for the time being. Haha.
I heard that Schwab has accounts for American investors so they can buy stocks/ETF's on the TSX.
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