Artis hikes distribution

Discolure: I own AX.UN

I guessed, when Artis announced yesterday they'd roughly doubled their annual revenue and profit that there might be another shoe to drop in the near future, and today, it did.

Artis upped their distribution today by 3 per cent, to 9 cents or $1.08 per year. In the last year, Artis has managed to lower their FFO ratio to a very impressive 65% (FFO stands for Funds From Operations, a key metric for REITS that basically indicates how much of their total cash flow gets paid out in distributions every month. The lower the ratio, the better, as it generally implies the distribution is safe, and in fact could probably stand to increase.)

I'd written recently about how I was thinking about selling my profitable stake in Artis, so this news is certainly welcome while I mull it over some more. Ultimately, I need to decide if those funds might be better spent somewhere else, but in the interim, it's nice to own a company that seems dedicated to growing dependably and profitably.

Thinking aloud: AX.UN

(Disclosure: I've owned Artis REIT for more than two years)

Being a long-term value investor, I try not to worry too much about short-term fluctuations, but that doesn't mean I'm not keenly interested in the reasons behind them. If a stock loses, say, 10% of its value, I want to know why. Did earnings fall off a cliff or did they lose a key customer? Or did it simply get knocked back by a broad market sell-off, but still has a decent long-term outlook? If it's the former, I'll probably avoid it, as it may have further to fall. But if it's the latter, I might kick the tires and take a stake if it's suddenly on sale.

The point is, I'm more than willing to live with my stocks being in the red (temporarily) as long as their long-term prognosis looks good, and as long as I can understand, sort of, why the market values it one way or the other. I like my companies to be predictable -- even when they have bad news, is what I'm trying to say.

It's why, despite the fact that's its actually made me money, one stock that's always been a noggin-scratcher for me is Artis Real Estate Investment Trust (AX.UN on the TSX.)

Artis has always been something of an anomaly, because it's done inexplicable things in both directions for as long as I've owned it. Typically, REITs are steady, dependable sources of income, that shouldn't be counted on much for capital gains. I bought Artis in 2006 when I was looking for exposure to two things in my portfolio: real estate, and the booming economy of Western Canada. I figured Artis (then known as Westfield REIT) was a good proxy for both.

In the first 12 months that I owned it, Artis' unit price increased by nearly 30 percent, and that doesn't even include distributions. Nice, but not exactly typical REIT behaviour, especially since the company was shelling out a disturbingly high percentage of its cash flow in distributions. In the year or so since then, it's been picked clean of most of those gains, before recently starting a mini-march upwards again. All this, despite the fact that its holdings and focus (retail and industrial properties in booming Western Canada) have remained largely the same. As I said, it's been quite the head-scratcher.

I'm oversimplifying a little, but conventional wisdom has it that falling interest rates are good for REITs. So you would imagine REITS have been doing quite well since the end of last year -- but you'd be wrong. They've started inching up a little of late, but the sector sank like a stone from about September until early 2008.

As I said, it's not the what that concerns me -- it's the why, and frankly, with Artis and Canadian REITs in general right now, I have no idea. The REIT's FFO recently increased (meaning they have more cash on hand available to pay distributions) which is nominally a good thing, but the marker hasn't really rewarded them too much for that yet.

I like to make informed investment decisions, but to be frank, while Artis was riding high, I didn't understand what was going on, and now that it's doing less well, I still don't get the rationale. That seems like a bad sign to me, so I'm thinking of selling my stake. I'm not in any urgent rush or anything. But since I'm slowly migrating my portfolio over into a passive ETF-based one, at some point soon I'm probably going to sell AX.UN and put the proceeds into a broad-market ETF, or possibly even the REIT ETF, if I want to maintain a real estate presence.

Who am I to ignore Warren Buffett's advice -- holding an asset I apparently don't understand (even one that's managed to make me money) it doesn't leave me with a very good feeling, and might be a pretty good signal to sell.

Nothing imminent, but it's safe to say Artis is officially on notice.

The little REIT that could

Disclosure: I own Artis REIT

Turbulent markets are as good a time as any to look back on the choices you made in your past, and see how they've held up.

Around this time last year, eager to capitalize on Alberta's red-hot economy and eager to get my first exposure to the REIT space, I took a position in Westfield REIT (now called Artis REIT). The REIT focuses on office, commerical and industrial space in Western Canada, primarily in Alberta.

In the past year, it's been a great little performer for me, up nearly 23% from when I bought it. I know -- one-year returns aren't what long-term investing is all about, but still, considering I've been plowing the distributions back into the REIT as part of their DRIP, it feels good to look back on a call that appears to have panned out for me.

In February, I wrote this post talking about how I was planning on moving over to the REIT ETF (XRE on the TSX) for the long term, just to be a little more diversified. I noted that the ETF had actually outperformed Artis to that point.

Things change. I haven't been payign much attention to the REIT space of late. I sort of assumed it was holding up , if nto steadily increasing, just like Artis has been. But it hasn't. Look at these two stock charts. On the left is the 1-year for XRE. On the right, Artis.

The more-diversified ETF has been on a slide since the spring, while Artis seems to be holding steady.

What am I thinking? Well, I still like Artis in the short term (the "Alberta + real estate = good" story continues) so I have no plans to sell, but XRE seems to be taking an unfair beating. If I wanted to move into the ETF long-term (as I plan to) this correction seems to have given me an entry point. But what with increasing my stake in Biovail last week, I'm a little short of cash at the moment.

We'll see how this plays out. As usual, do your own homework. But I'm curious for what any of the other REIT investors out there are thinking right now.

Pot Pourri

The Market Guy has made his long-overdue return to financial blogging with a new column. Welcome back. You were missed. Even better from my perspective, he's spotlighted two of my holdings, BMO and Artis REIT -- calling the latter the "the consensus discount candidate in the REIT space."

Speaking of BMO, after the run of bad news they've had, it's refreshing to read some bad news for a bank that's someone other than them.

Updated my net worth on NetworthIQ and as predicted, while the line is still headed in the right direction, my growth is slowing down. Should be a temporary thing as funds that would normally be directed towards investing are being put to other uses during the summer. Back on the horse in the fall, hopefully.

Poison pills can taste good

Just when I think I have a handle on all the holdings in my portfolio, Artis REIT, which I've held since last summer, put out a curious press release yesterday. And frankly, I'm not sure how to react.

Artis Real Estate Investment Trust (TSX: AX.UN) (“Artis REIT”) announced today that it has adopted a unitholders’ rights plan...The Rights Plan was not adopted by Artis REIT in response to any specific proposal to acquire control of Artis REIT and the board of trustees is not aware of any such proposal…Should a non-permitted acquisition occur, each right would entitled the holder of Units to purchase additional Units at a fifty (50%) percent discount to the market price at the time.

To my eyes, this basically amounts to management playing defense against a takeover by building in a poison pill that would water down any hostile bidders' stake. Which begs the obvious question: why is management worried about a takeover?

Indeed, from a shareholder's point of view, takeovers are generally good. You either sell your units to the bidder for a premium price, or the deal is rejected as management promises to come up with something better.

I've been very pleased with the holding since I've bought it, and I must admit this news has sort of thrown me for a loop. On the one hand, it's sagged a little of late along with all REITs due to concerns over rising rates. But analysts still love it.

I'm not really sure how to react. Your thoughts? Does the fact that management has come out with a defence plan for an unsolicited takeover bid I didn't even know was in the offing seem like a good thing or a bad thing in your book?

It's times like this my lack of finance knowledge can be a bad thing.

New name, (hopefully) same results

One of my best purchases of 2006 would have to be the 220 units of Westfield REIT I added to my RRSP in August.

I was thinking of getting REIT exposure in general and was leaning towards the iShares REIT ETF (XRE on the TSX) when I came across Westfield. I liked Westfield's focus on office properties in Western Canada both as a way to gain real estate exposure in my portfolio, but also as an indirect play on Alberta's booming economy. As it turns out, both would have been solid investments (Westfield's gone from $13.91 to $16, a 14.8% increase, while XRE has gone from $14.35 to $16.80, a 17.1% increase before distributions.) I probably will move to the ETF eventually, but I really like Westfield's prospects in the short term, and as such I like its odds of beating the index for the next little while. The fact that they give me a slight discount for reinvesting my distributions into new units is a bonus at this point.

News came out yesterday that Westfield is changing it's name to Artis REIT effective February 15th.

I don't particularly know or care what's prompted the name change. They could call themselves World's Crappiest REIT at this point -- as long as the fundamentals are there and the financial results are pointing in the right direction, I'll stay invested.

DISCLOSURE: As if it weren't obvious, I own units in Westfield