Artis REIT CEO Samir Manji seen in 2018. If the reverse takeover is approved, he will become executive chair of the merged company, RFA Financial.DARRYL DYCK/Globe and Mail
Artis Real Estate Investment Trust AX-UN-T is buying the mortgage company run by its board chair and plans on branding itself as a financial services company under a new name.
Artis is currently a publicly traded REIT with a heavy exposure to office buildings in the United States. Through a reverse takeover, Artis will buy RFA Capital Holdings Inc., a privately owned mortgage company run by board chair Ben Rodney, and transition to a corporation.
If the deal is approved, Artis shareholders will own 68 per cent of the merged company, RFA Financial, and Mr. Rodney will be chief executive officer. Samir Manji, currently Artis’s CEO, will become executive chair.
The reverse takeover involves Artis unitholders accepting a 27-per-cent distribution cut, because RFA plans on paying a quarterly dividend amounting to $0.44 per unit annually, lower than Artis’s monthly distributions that currently total $0.60 per unit annually.
The proposed transaction is the second unusual strategy during Mr. Manji’s tenure running the company, after he proposed in 2021 to morph Artis into a private equity firm. The REIT’s units fell 6.4 per cent on the Toronto Stock Exchange Monday.
Historically, Artis was a well-known Canadian REIT, but its business became challenged by its extensive retail property holdings, particularly in Alberta. Five years ago Mr. Manji launched an activist campaign to shake the company up through his privately held business, Sandpiper Group, and he ultimately took control of the REIT. Mr. Manji was successful in this campaign after questioning the independence of a construction and management company allegedly owned by the former CEO’s family.
However, once he took over, his fix was to turn the REIT into a holding company that looked very similar to his existing private equity firm. Mr. Manji wanted to sell many of Artis’s properties and redeploy the cash into equities of real estate companies. He also wanted to fund development projects and embark on activist campaigns.
The new strategy was a major departure for Artis because REITs are often owned by retail investors who buy these trusts because they own income-producing properties and normally pay out stable distributions.
The strategy also involved Artis giving an investment management contract to Sandpiper, paying Mr. Manji’s private firm to manage investments in publicly traded real estate companies.
Two years in, Artis continued to struggle and in mid-2023 management launched a second strategic review. Under that plan, Artis decided to sell even more properties to pay down its debt, and the review concluded in December, 2024.
After the asset sales, 61 per cent of Artis’s net operating income now comes from office buildings, predominately in the United States. Artis owns offices in cities such as Minneapolis, Minn., Phoenix and Madison, Wisc.
But now the REIT has a completely new strategy. After the merger, the plan is to continue selling commercial real estate assets and use the cash “to support the growth opportunities in RFA Financial’s expanding financial services platform,” according to a news release.
Artis is calling the merged company a “diversified, bank-led entity,” according to an investor presentation on Monday, but some analysts have struggled to wrap their heads around the structure.
“We find it challenging to assess the merits of the proposed deal, with the unusual deal nature perhaps indicative of limited other (more conventional) options at this stage,” Bank of Nova Scotia analyst Mario Saric wrote in a note to clients Monday.
If the deal is approved, Artis will delist its units the Toronto Stock Exchange and then RFA Financial will apply to list its common shares on the TSX. Because a number of insiders own a significant portion of the REIT already, a majority of minority unitholders will have to vote in favour of the transaction.