AX.PR.G To Be Redeemed

Artis Real Estate Investment Trust has announced:

that it has delivered formal notice to the holder(s) of its Preferred Units, Series G (the “Series G Units”) that, on July 31, 2019, the REIT will redeem all of the 3,140,300 outstanding Series G Units at a price of $25.3125 (the “Redemption Price”) for each Series G Unit, being $25.00 plus $0.3125 in accrued and unpaid distributions thereon up to but excluding July 31, 2019.

The Redemption Price will be payable upon presentation and surrender of the Series G Units called for redemption at the corporate trust offices of AST Trust Company (Canada) at 1 Toronto Street, Suite 1200, Toronto, Ontario, M5C 2V6, Attention: Corporate Actions.

That was a nice surprise for holders of the issue, as AX.PR.G closed at 25.25, up $4.52 (+21.80%!) on volume of 234,839.

AX.PR.G is a FixedReset, 5.00%+313, that commenced trading 2013-7-29 after being announced 2013-7-18. Note that it is not strictly a “preferred share”, it is a trust unit, and that it pays interest and return of capital (see comments), not dividends. The issue has been tracked by HIMIPref™ but relegated to the Scraps – FixedReset (Discount) subindex on credit concerns.

A hint as to why they did this may be found in a June 3 press release:

Artis Real Estate Investment Trust (TSX: AX.UN) (“Artis” or the “REIT”) provided an update today on its normal course issuer bid (“NCIB”) activity in May 2019.

During the month of May, Artis has acquired the following number of units through its NCIB:
• 1,590,993 trust units at a weighted-average price of $11.24;
• 6,800 Series A preferred units at a weighted-average price of $21.96;
• 9,800 Series E preferred units at a weighted-average price of $20.56; and
• 13,100 Series G units at a weighted-average price of $21.99.

From November 1, 2018, when the REIT announced its intention to purchase units through its NCIB, to May 31, 2019, Artis has bought back 12,650,364 trust units at a weighted-average price of $10.46, 51,900 Series A preferred units at a weighted-average price of $21.53, 59,600 Series E preferred units at a weighted-average price of $20.09, and 55,000 Series G preferred units at a weightedaverage price of $21.37.

As of the date hereof, there are 141,283,025 trust units, 3,400,200 Series A preferred units, 3,944,100 Series E preferred units, 3,150,300 Series G preferred units and 5,000,000 Series I preferred units outstanding.

The REIT has an automatic purchase plan in place which allows for the continuous purchase of units and preferred units under its NCIB, including during normal blackout periods.

Their 2018 Financial Report discloses:

The REIT’s weighted-average effective rate at December 31, 2018, on mortgages and other loans secured by properties, inclusive of properties held in joint ty5frgtenture arrangements, was 4.30%, compared to 3.96% at December 31, 2017. The weighted-average nominal interest rate on mortgages and other loans secured by properties, inclusive of properties held in joint venture arrangements, at December 31, 2018, was 4.09%, compared to 3.79% at December 31, 2017.

So in terms of cash, they’re not really saving too much by redeeming AX.PR.G at par, given that it would have reset to about 4.50%. But they’re saving a little bit, and 50bp was enough for RioCan to redeem REI.PR.A and later, REI.PR.C.

Still, holders of AX.PR.G have just been handed a windfall profit of over $14-million, which is about $0.10 per trust unit outstanding, which compares to a reported profit of $158-million in 2018. If I owned the trust units, I’d be ticked off. Why is there such an emphasis on big dramatic moves? What’s wrong with continuing to purchase on the open market at a $4 discount to par, given that the excess financing cost is only about $0.10 – $0.15 per annum? What’s the risk? If you get it wrong, you have another chance to redeem in five years – that’s the beauty of the FixedReset structure – at least, from the issuers’ perspective.

Sure, it’s slow. So what? Slow and steady wins the race!

3 Responses to “AX.PR.G To Be Redeemed”

  1. dodoi says:

    I remember they cut down recently the dividends for the common shares and probably they have too much cash available.

    Maybe they are allowed to buy back only a few units, or reached the conclusion that the some owners will not sell it, or the process is too slow. Who knows?

    It looks like the AX.PR.A 5.662% + 4.06 which reset in 2017 and will reset again in 2022 it will have the same fate. I own a few of them and did not know why it has been hold so well. I have no intention to sell it and look forward to 2022.

  2. skeptical says:

    Wow! What an unexpected treat to the holders.
    Is this yet another sign that if you are not holding preferreds due to some regulatory reason (bank, insurance, utilities), this market is far too expensive for regular companies?
    A few instances this year have been Westcoast energy, IGM Financial and Valener.
    Westcoast energy- 5.5/5.6% perpetuals
    IGM- 5.9% perpetuals
    VNR.PR.A- 2.96 rate reset spread
    And AS.PR.G – 3.0x rate reset spread

    The last one is junk while others are investment grade. If junk issuers are finding this market too expensive, what about the others?

    Whenever this market goes back to ‘normalcy’, there’s going to be a huge number of such issues recalled. IIRC, there was an issue by Sunlife (SLF.PR.F) that was rate reset with a spread of 3.79 that was recalled back in 2014. and now we have numerous issues by solid banks/insurers with similar spreads that are trading below par. And the comparative bond yields have only gone lower since then.

    Hold on soldiers, collect the dividends and you shall be rewarded with capital gains too!

  3. Jingaly says:

    An observation on AX.PR.A vs AX.PR.E vs AX.PR.I

    I find it fascinating that “investors” still put a premium on the minimum reset feature on PR.I over and above the “potential” yield to call available on both PR.A and PR.E

    Using James’ handy fixed reset yield to call spreadsheet, I get the following for each series (assuming each is called at next reset date)

    PR.A, using current offer of $22.25, potential call date of 09/30/22, and dividend of $1.4155, ytc = 10%

    PR.E, using current offer of $20.50, potential call date of 09/30/23, and dividend of $1.368, ytc = 11.15%

    PR.I, ytc = 6%

    Obviously there is a risk that either or both of PR.A and PR.E don’t get called at the next reset date…

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