Artis REIT one year later: ‘efforts continue to bear fruit’

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This article was published 23/03/2022 (1378 days ago), so information in it may no longer be current.

There were eyebrows raised and some finger-wagging regarding self-serving transactions but one year after Samir Manji and Sandpiper Group gained control of the board of Winnipeg-based Artis REIT investors can’t feel too bad.

With the release of its annual results earlier this month, the real estate company has a smaller footprint — the value of total investment properties is down about 12 per cent— and total revenue was down 8.6 per cent but the REIT increased its profits by 1,706 per cent.

As promised the company sold off a lot of properties — 41 in total — including a sizable portion of its industrial portfolio, the most in-demand asset class in the real estate market these days.

There are some who question the wisdom of selling off more than $700 million of industrial properties in the Greater Toronto Area when that’s exactly the kind of investments many others are desiring to make.

But the sell-off allowed the company to reduce its once over-sized debt load, a major point of contention for Sandpiper to take its initial action on Artis. Debt to book value at the end of the year was 42.9 per cent, down from 49.3 per cent.

Net asset value per unit, which is an important performance indicator for REITs, increased to $17.37 from $15.03.

In a long “letter to unitholders” published on Tuesday, Manji said, “The proceeds from divestitures provided us with the financial flexibility to make significant progress in the execution of our strategy.”

The idea was to then use some of the proceeds of the divestitures to invest in other REITs or publicly traded real estate companies, partner with private developers or purchase buildings that Artis believes are undervalued.

Artis established a formal relationship with Manji’s family-owned business, Vancouver-based Sandpiper Group, to identify public securities investment opportunities even though it was similar non arms-length transactions undertaken by Artis’s former management team led by former CEO Armin Martens that inspired the proxy battle to take over Artis.

But among other things that decision gave Artis an opportunity to partner with other funds in acquiring Cominar REIT for $5.7 billion. Cominar’s properties are primarily in Quebec.

When the Artis takeover was completed a year ago analysts worried that existing unitholders might wander off. But as per the plan, unit prices are up 21 per cent from a year ago helped by a healthy share buyback program.

The company has also pledged to create value with well-managed development projects. Although it sold off much of its industrial portfolio it is in the process of building large industrial development in Houston and Phoenix.

Perhaps the company’s highest profile development — literally and figuratively — is the 40-storey 300 Main project in Winnipeg just south of Portage and Main. Pre-leasing is now underway for the apartments on the first 20 floors of the building.

Rather than just acquiring, developing and/or managing properties, under Manji’s leadership the company is also investing in other REITs where it is believed they own real estate that is mispriced, misunderstood or mismanaged.

It does not disclose those investments other than a 10 per cent stake in Dream Office Real Estate Investment Trust.

Its plan for this year includes selling off about $500 million of assets in several Canadian and U.S. markets to continue to pay down debt and “to reallocate some of the capital into initiatives that we believe will achieve the highest possible return,” Manji said in his letter.

While he told unitholders that he couldn’t guarantee similar performance every year, he said, “The heavy lifting in 2021 planted seeds for growth in 2022. As we move through the next year and focus on the execution of our strategy, our unitholders will see these efforts continue to bear fruit.”

martin.cash@freepress.mb.ca