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

Mongoose

[Frankie10]

Mongoose has made many great points as of late - some of which I agree - and some I do not, respectfully. One point I hold in contention is the opinion that it was foolish to buy certain REITs using margin.

My investment thesis on my core levered position (H&R) is 10 years+ at a minimum to see what happens with their billion dollar buyback options. Over that period of time, my thesis to short CAD & USD to pair that short with a long position in world class, undervalued, hard assets, is only strengthened everyday the US government turns every fiat currency into toilet paper (USD eats global value as it debases because it is the global reserve currency - refer to milkshake effect). 

"And we're off again: total US debt rises $61BN overnight, hits record $33.827 trillion on Friday. 

$173BN away from $34Trillion, and we hit $33Trillion just 2 months ago."

This has been a very humbling year for me. I have spent hundreds of hours learning and analyzing company specific factors and macro economic factors over the past 3 years... As humbling as it has been - it has been even more educational. My conviction remains unbroken. I am proud of the positions I built.

[Mongoose1234]

foolish might be the wrong word, i think a more accurate description would be probably mis understood. Buying on margin puts you on a timeline (margin interest or even a LoC is quite substantial right now) what if, Artis cuts the dividend, and then you're sitting on no cash flow and cash outflows. you are now playing a negative waiting game. The turnaround plan could very well take a

[Frankie10]

Respectfully, I do not view my investments that way. This is not a bond proxy like Snakey believes - I own equity - admitidley, the distribution is meaningful to most unitholders, but this is not a metric I care for - I care about cash flow - I use AFFO as a proxy (before tax). I borrow at 6% to 7.2%. The AFFO return on my current cost base for H&R, Artis, and Allied are ~8%, 8% and 10

[thenewsnake]

agree with frankie, 60% of my portofolio is my own money, the levered portion pads the returns substantially in a low or decreasing interest rate environment, and basically now is a wash (yield offsets interest expense).  cuts to a 0% dividend or 50% is rather rare, just seen a couple reits do it so far

[WEBuffettisbest]

Also, the interest expense is fully tax deductible, and the distributions are not usually fully taxable. So an extreme example is paying 6 to 7% interest so 3 to 4% after tax and getting 8 to 10 % distribution which only 50 is taxable, so keep 6 to 7.5% after tax. Canada rates With a positive carry of 3 to 3.5 %, one can wait for the eventual price rise. Risks are higher interest rates and

[Frankie10]

Positive cash carry is nice (cash distributions less interest paid less taxes on net taxable income). That said, I'm more concerned with the free cash flow at the entity level rather than my personal level. Distributions do not fall from the sky. In theory, if all my REITs cut their distributions to zero and their underlying cash flow increased - I would be happy. I am not like most people

[Mongoose1234]

Frankie, i don't disagree for the most part, however, i think you need to be aware though Even if AFFO remains above the borrowing cost, you could still be losing equity. FFO and AFFO do NOT account for fair value write downs / losses in the portfolio. so you could buy a building for $1,000,000, have some cash flows, and sell it for $500,000, and still have positive AFFO the whole time

[Frankie10]

Valid points. I appreciate the conversation. Have a wonderful day MOONgoose.

[Mongoose1234]

Hi Buffett, just becareful with these assumptions you're not actually taxed on distributions it's a REIT, so you receive a T5013 slip if the reit makes money but doesn't distribute cash flow, you'd still get a T5013 silp which means you'd still be responsible for the tax a REIT is a flow through entity, you pay the REIT's tax no matter how much they distribute. its not

[WEBuffettisbest]

Hi Mongoose I get a T3 not a T5013 as I am in Canada, only get a T5013 from limite partnerships not a reit. Only time we have cash flow issue as a canadian tax payer was ax and hr sold properties and had to make a year end distribution to cover capital gains. The capital gains reduce the ACB. The remaining distribution be it return of capital, other income, foreign dividends, etc is taxable or

[Mongoose1234]

oops sorry you are correct T3 not T5013 but yes, you are correct i was over simplifying trying to specify distributions are complex tax wise and can vary (adn your ACB can vary) i just meant that distributions are far more complex for taxation than just being treated like a dividend i prefer to hold all REITs in registered accounts, as sometimes you can get income allocations which are taxed