Artis Real Estate Investment Pref Shs Series E T.AX.P.E

first comments from TD

[incomedreamer11]

Event This morning, Artis announced the sale of its GTA industrial portfolio (28 properties) for $750mm.
Impact: SLIGHTLY POSITIVE

Our Take: We view the transaction positively and highlight that it is being completed at what we view as very attractive pricing. The sale price represents a 36.2% premium to the Q1 IFRS value and is ~25% higher than what we had carried the portfolio at in our NAV estimate. The ~$150mm delta between the sale price and our valuation would add ~$1.10/unit on a pre-tax basis.

Transaction: Artis announced that it has entered into an unconditional agreement (buyer not disclosed) to sell 28 industrial properties in the Greater Toronto Area for $750mm ($297/sf). We estimate a 3.0% cap rate. The transaction is expected to generate ~$734mm following the repayment of one outstanding mortgage of $15.2mm and anticipated closing costs. In line with Artis' Business Transformation Plan, the proceeds will be used for debt repayment and to provide financial flexibility for Artis' return of capital and value investing strategies. We estimate that pro forma D/GBV will be ~40%, down from 49.2% reported at Q1/21. The transaction is expected to close in Q3/21 and is subject to routine Competition Bureau approval. Although not disclosed, we anticipate some capital gains tax leakage as a result of the sale.

Portfolio: The properties aggregate ~2.5mm square feet of leasable area on 155 acres (37% coverage ratio) and are generally well located (Exhibit). Occupancy as of Q1/21 was 97.3% and 99.2% on a committed basis. We estimate in place rents of ~$9/sf, which compares to current asking rents of $10.45 in the GTA (per CBRE). The WALT on the portfolio is 3.7 years.

Pricing sets new GTA benchmark. The 3.0% cap rate compares favourably to CBRE's Q1/21 cap rate survey which pegged the low end of class A and B GTA industrial assets at 3.5% and 4.25%, respectively. The $297/sf also compares favourably to the $257.88 Q1/21 average psf sales price for GTA industrial according to CBRE