RRSP Investors: Top Stock for January 2021

Artis Real Estate Investment Trust (TSX:AX-UN) is a diversified Canadian real estate investment trust trading at an inexpensive valuation. Is there a catalyst on the horizon to cause the share price to go higher?

| More on:
Modern buildings in business district

Image source: Getty Images

Artis (TSX:AX.UN) is a diversified Canadian real estate investment trust investing in office, retail and industrial properties. Artis has executed an aggressive but disciplined growth strategy over the last decade, building a portfolio of commercial properties in British Columbia, Alberta, Manitoba, Saskatchewan, Ontario and certain markets in the United States.

Artis’ commercial property by asset class is approximately 43% office, 14% retail and 43% industrial. The portfolio by leasable area is located 2% in British Columbia, 15% in Alberta, 6% in Saskatchewan, 15% in Manitoba, 16% in Ontario, 8% in Arizona, 24% in Minnesota, 7% in Wisconsin and 7% in other parts of the United States.

The company is very attractively priced, with a price-to-earnings ratio of just 8.71, a price-to-book ratio of 0.67, and market capitalization of $1.42 billion. Debt is very conservatively used by Artis, as evidenced by a debt-to-equity ratio of 1.1. The company has excellent performance metrics with an operating margin of 57%.

The company’s provides a tax-efficient monthly cash distribution as well as long-term appreciation in the stock price through the accumulation and effective management of best in class commercial real estate properties. Historically, Artis’ has done well in identifying opportunities to make accretive acquisitions, develop new generation real estate and dispose of assets that are not aligned with the company’s long-term strategy.

Recently, Artis has extracted value through leasing initiatives that focus on maintaining strong occupancy levels. As a result, the company has realized the gain between in-place rental rates and market rental rates. Artis has also created value through strategic asset redevelopment and property intensification initiatives, and through new development projects.

New developments have provided Artis with an opportunity to build and own newer buildings. Management are disciplined capital allocators and have considered development opportunities only in circumstances where the return on a development project is higher than that of acquiring an existing property.

Artis has always adopted a long-term conservative approach to financial management, characterized by diligent  balance sheet management, and prudent management of financial metrics, such as debt ratios, interest coverage ratios, payout ratios, and per unit metrics. Artis has minimized interest rate risk effectively by utilizing various sources of capital, and staggering debt maturities.

Artis’ most recent financial statements have indicated that the company has ample access to cash to fulfill distribution obligations and for ongoing operations, which includes re-investing in the portfolio, making accretive acquisitions and funding development projects.

The company’s net asset value (NAV) per unit is well in excess of $15 per unit and unencumbered assets have increased over time. Portfolio occupancy remains in excess of 90% and the company has been actively reducing exposure to the Calgary office market, a strategy which is expected to pay off over the long term.

Recently, Artis also disposed of an office property in Arizona and another in Toronto, Ontario for total sale prices of $215 million to fund share buybacks and to acquire a surface parking lot in Manitoba. The company has opportunistically utilized the normal course issuer bid to repurchase common units and preferred units below intrinsic value. Increased share buybacks could cause the share price to climb significantly higher.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nikhil Kumar has no position in any of the stocks mentioned.

More on Investing

money cash dividends
Stocks for Beginners

Where to Invest $10,000 in April 2024

If you've already created a diversified portfolio and are looking for more options from a windfall, here is where I…

Read more »

data analyze research
Investing

The Ultimate TSX Stock to Buy With $1,000 Right Now

Brookfield Asset Management (TSX:BAM) is one of the best Canadian stocks to buy for those looking to put capital to…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »