It has been really a long time for me since I last posted in BeSmartRich. My work has been extremely busy lately that my life has been sucked into it for last 2 months. I have been working like 10 hours daily on average with some weekends work. Haha well…
For the same reasons, I wasn’t able to purchase stocks for a while but as you know due to TFSA limit increase from $5,500 to $10,000. I had to put my money to work in that beautiful tax free investment account.
I purchased 310 stocks of Artis REIT (AX.UN) at $14.51 which will add $345 to my annual dividend income. Think about it that’s $28 of free cash every month. It will almost cover my monthly cell phone bill which is under a company plan.
What is Artis (AX.UN)?
Artis is a diversified Canadian real estate investment trust investing in office, industrial and retail properties. Artis has built a portfolio of commercial properties in Canada and the United States, with a major focus on Western Canada.
At March 31, 2015, their portfolio consists of 25.2% retail, 51.7% office and 23.1% industrial and geographically, 7.4% in British Columbia, 38.8% in Alberta, 5.7% in Saskatchewan, 12.3% in Manitoba, 10.9% in Ontario and 24.9% in the U.S. Due to 38.8% of portfolio is from Alberta where low oil price has most impacted, the stock is in downward trend which created a good opportunity for me to grab this solid REIT in my TFSA.
Real Estate Investment Trust (REIT)
Before I move on further, for those of you who is thinking of investing in REITs, I would strongly recommend you to purchase REITs in your registered accounts to minimize tax complications and avoid paying high taxes. I will write an article about REITs in the near future but let me explain more briefly here.
REITs distribute various types of dividend income such as 1) other income 2) foreign non business income 3) capital gain 4) reduction in adjusted cost base etc… Other income is taxed at your marginal tax rate just like interest. Foreign non business income is taxed at your marginal tax rate. Capital gain is taxed at 50% of your marginal tax rate. Reduction in adjusted cost base is not taxed immediately rather tax is deferred until you sell your units thus a tax-efficient income. If you hold REITs in your registered accounts, the different tax treatments doesn’t matter as you don’t pay any taxes on the dividends.
Artis has a fairly high occupancy rate of 95% as you can see below.
Artis’s dividend yields at a whopping 7.5% currently and a payout ratio of around 80%. The company has been paying uninterrupted dividend since 2006 at the current level. What more can I ask for. Purchasing REITs with a combination of tax deferred/ tax free registered plans is a pure dividend income play that provides joys to smart investors.
Recent 2015 Q1 report showed its growth potentials
- Reported Same Property NOI growth of 5.2% compared to the same period of last year.
- Achieved an increase of 6.0% in the weighted-average rental rate on renewals that commenced during the three months ended March 31, 2015.
- FFO per unit increased 5.6% to $0.38 per unit compared to the same period of last year.
- AFFO per unit increased 6.5% to $0.33 per unit compared to the same period last year.
- Improved period-over-period FFO payout ratio after adjustments to 73.0% at March 31, 2015, compared to 75.0% at March 31, 2014.
- Improved period-over-period AFFO payout ratio after adjustments to 84.4% at March 31, 2015, compared to 87.1% at March 31, 2014.
- Decreased secured mortgages and loans to GBV to 40.6% from 41.3% at December 31, 2014.
- Maintained solid occupancy at 94.7% (95.7% including commitments) at March 31, 2015.
- Maintained a healthy interest rate coverage ratio of 2.89 times for the period ended March 31, 2015 and decreased the weighted-average effective mortgage interest rate to 4.14% at March 31, 2015.
- The biggest risk is weakness in Alberta and Saskatchewan due to oil crash.
- If interest rate increases, its mortgage will get more expensive thus reducing net income however rate changes typically passed on to the tenants.
Artis has a really well known management team and good working culture which was evidenced by the fact that Artis REIT was named one of Canada’s top small and medium employers for 2015. What I value the most when picking right stocks is whether the company has a solid management team with a good working environment. So far things have been working very well with that strategy. Happy cows produce more and higher quality milk.
Despite the recent volatility of oil prices, the Artis will perform relatively well due to its diversified properties in various locations. Also a stronger US dollar will provides additional revenues when converted to Canadian dollars and the interest rates would not appear to be increasing anytime soon and will remain low for next couple of years.
Artis balance sheet is fairly healthy and capital has been raised quite efficiently due to its excellent credit ratings. Artis has demonstrated and will execute proven growth strategy in the future through 1) capitalizing on below-market rent opportunities 2) maintaining healthy occupancy levels 3) repositioning of well-located assets in primary markets 4) intensification of existing property 5) and new construction (Artis annual report 2014)
It the short-term, the share price is purely based on emotion and psychology and therefore will be impacted by the price of oil however its solid performance over the past especially growing its business as well as dividend in toughest times provides me full of confidence in the company to add initial position of the stocks when it is well priced. I can easily see that current uncertain time will make the stock price to fluctuate even more considering it being a mid-cap sized company but I am thinking it as a very long-term investment and I am quite confident that the stocks will do very well in a long term. I think Artis REIT is an excellent stock to buy and forget if you are a long-term investor. My purchases of Artis stocks will add $345 to my annual dividend.
What do you think about my purchase? Do you have more appealing stocks on your watch list?
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Interesting purchase, BSR.
I dont know much about Artis, but from what you have said – and glancing over the financials here, looks like a good buy. Industrial REIT is an interesting space – and Ive been thinking a bit about it. Thanks for sharing and congrats on adding a neat $345 in annual dividends!
AX.UN is an interesting purchase for sure. I did not really know about this company until I looked more into REITs of Canada. There are a lot of strong names such as Boardwalk, HR, Cdn Apartment which I have my eyes on at this time but decided to purchase AX.UN as it seemed undervalued at the moment. Thanks so much for coming R2R.
Looks like all kind of REITs are continuing to be popular. I have never heard of this particular REIT but I’m sure you have noticed a lot of REIT buys in the last month and bond yields and Fed interest rate talks have all put the kibosh on REIT companies. Names that people have been buying are OHI, WPC, HCP, HCN, VTR just to name a few. I myself am looking at DLR and LTC as well. Thanks for sharing.
REITs are still popular due to low interest rates as you mentioned. I have been looking OHI which is reasonably valued at this time. I am thinking of adding more Canadian REITs that are closely related to oil provinces for current attractive valuations. Thanks for stopping by DivHut. Happy hunting!
I think this is a great buy. I know I looked at Artis a while back and almost purchased some shares.
Thanks Tawcan. I have always wanted to add good REITs and Artis was the first one. I am thinking of adding some Boardwalk REIT next.