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

artis versus hr

[garyreins]

Artis is being given  10.75x AFFO multiple based on last quarter annualized (0.56) whilst HR is being given a 8.75x AFFO multiple (1.00) annualized

Which means all else being equal HR should be 10.75.

The 10% dividend versus 6% dividend and NCIB is giving artis the EDGE.  Despite having 60% NOI from office versus 20% from HR (give or take)

[Torontojay]

Affo valuation trumps a dividend valuation model.  A dividend paying company is constrained to grow its dividend if it's affo is stagnant or even declining. The cash flows come with greater risk if the dividend eats away all of its affo.  A higher dividend yield also implies a higher cost of equity or a higher equity risk premium. For instance, if Artis has a 10% distribution

[Frankie10]

All great points. I would however disagree with your last point regarding cost of equity implied by dividend yield. For the same reason you illustrate above regarding valuation - you cannot look to the distribution/dividend given it is descretionary in nature - you should look to the underlying of the dividend which is FCF. Same with cost of equity - no Valuator should use dividend yield as proxy

[Torontojay]

I'm just using a simple Gordon Discount model to determine the cost of equity.  You should never look at dividend in isolation without looking at its affo. Still, the Gordon model suggests that the cost of equity is equal to the dividend yield plus the growth rate in dividends in future years.  For example, if dividends grow at the expected inflation rate of 2% and the

[Frankie10]

Thank you for taking the time to post. I have given it some thought and you're not wrong. That said, it's too simple of a model to accurately reflect cost of equity for most companies. The only example I could think of where it may be appropriate is if you had a company pay all of its FCF as a dividend, except for the FCF retained as non-cash net working capital required to grow according