- Artis REIT (TSX:AX.UN) will sell eight of its Canadian retail properties for C$222 million to reduce debt amid ballooning mortgage interest rates
- The properties are evenly split between Calgary and Winnipeg and total 595,199 square feet
- Artis is a diversified Canadian real estate investment trust operating a portfolio of industrial, office and retail properties in Canada and the United States
- Shares of Artis Real Estate Investment Trust (TSX:AX.UN) are down by approximately 50 per cent year-over-year and by 36 per cent over the past five years
Artis REIT (TSX:AX.UN) will sell eight of its Canadian retail properties for C$222 million to reduce debt amid ballooning mortgage interest rates.
The portfolio is composed of four properties in Calgary, spanning 293,660 square feet of leasable area, and four properties in Winnipeg, spanning 301,539 square feet of leasable area.
Artis will use the proceeds to reduce overall debt. The transaction will enable the company to unload C$80.5 million of mortgage financing off its books.
The sale price works out to C$373 per square foot, which is in line with the REIT’s international financial reporting standards (IFRS) fair values reported on Sept. 30.
“The sale of this portfolio of Canadian retail properties is an important step towards achieving our near-term objective of strengthening our balance sheet, reducing debt and enhancing liquidity,” Samir Manji, Artis REIT’s president and chief executive officer, said in a statement. “We continue to believe that our ongoing initiatives, including asset sales, capital re-allocation, and liquidity enhancement, will enable us to navigate the current environment. This transaction reflects the quality of Artis’ real estate portfolio. We are also seeing very strong interest in Artis’ retail portfolio located in other Western Canadian markets, with the recent drop in bond yields further strengthening the large number of buyers who have expressed interest in one or more of these markets. This will position us well in our efforts to maximize value on dispositions that Artis is pursuing.”
The transaction is subject to customary Competition Bureau approval and is slated to close in the first half of 2024.
The property disposition reported Friday follows a five-property sale for C$112.7 million, which will also go towards debt reduction.
Potential for undervaluation
Given Artis’ estimate of an IFRS net asset value of C$15.26 per unit, the company’s shares are currently trading at a 57 per cent discount to fair value.
However, potential investors should note that future returns are heavily contingent on how the company manages the more than C$11 billion of mortgage and loan interest expenses on its balance sheet as of Sept. 30, which is up by more than C$3 billion year-over-year. The loans carry a weighted-average effective interest rate of 6.63 per cent, up from 4.84 per cent on Dec. 31, 2022, and will likely call for further company restructuring until inflation reverts to historical averages.
The C$11 billion figure is in addition to C$18 billion in interest expenses due for Artis’ senior unsecured debentures, credit facilities and preferred shares, which are largely responsible for its more than C$450 million in net losses over the past five quarters.
That said, judging by management’s profitable track record from 2018 to 2021, including almost C$700 million in net income, potential investors have reason to believe the company will prevail despite the unfavourable macroeconomic environment.
Artis is a diversified Canadian real estate investment trust operating a portfolio of industrial, office and retail properties in Canada and the United States. The company is focused on growing distributions and net asset value per unit through debt repayment, return of capital and value investing in real estate.
Artis Real Estate Investment Trust (TSX:AX.UN) is up by 2.22 per cent trading at C$6.44 per share as of 9:45 am ET. The Canadian REIT stock is down by approximately 50 per cent year-over-year and by 36 per cent over the past five years.
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