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!