Dividend stocks: Canadian REIT and H&R REIT follow different paths to growth and income

Canadian REIT and H&R reit

We look at two Real Estate Investment Trusts (REITs) with different approaches to growth—Canadian REIT and H&R REIT. Canadian REIT raises revenue and cash flow through a strategy of internal growth, developing its own properties. H&R REIT, with holdings in 506 properties in Canada and the U.S, has taken a different route to growth. The trust sold partial stakes in 101 of its industrial properties and is using that cash to buy more malls and office buildings in Canada and the U.S. as well as a luxury apartment complex in New York City. We view both Canadian REIT and H&R REIT as buys for conservative investors.

CANADIAN REIT (Toronto symbol REF.UN; www.creit.ca) owns 198 properties, including retail, industrial and office buildings, across Canada and in Chicago. These holdings contain 24.9 million square feet of leasable area. The trust’s occupancy rate is 94.7%.

In the three months ended September 30, 2015, Canadian REIT’s revenue rose 4.5%, to $109.5 million from $104.8 million a year earlier. Cash flow per unit gained 2.7%, to $0.76 from $0.74.


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The trust aims to grow mostly by developing its own properties rather than through large acquisitions. Over the next few years, it’s spending $660 million to add 3.1 million square feet of space. To cut its risk, Canadian REIT takes on partners to help carry out big projects.

The units trade at 13.6 times the trust’s forecast 2016 cash flow of $3.08 a unit. It raised its quarterly distribution by 2.9% with the July 2015 payment, to $0.15 from $0.1458. It now yields 4.3%.

Recommendation in Canadian Wealth Advisor: BUY 

Dividend stocks: H&R trims industrial holdings to invest in luxury complex

H&R REIT (Toronto symbol HR.UN; www.hr-reit.com) owns or has stakes in 506 office buildings, industrial properties and shopping malls in Canada and the U.S. In all, these holdings include 46.6 million square feet of leasable space.

In December 2014, the REIT sold part ownership in 101 industrial properties, or a total of 19.5 million square feet, in Canada and the U.S. for $731 million. The buyers included the Canadian Public Sector Pension Investment Board.

H&R kept a 50% interest in the Canadian properties and a 49.5% stake in the U.S. portfolio. It continues to manage these assets and receives fees for doing so. H&R also held on to full ownership of 14 other industrial properties.

The trust will use the proceeds to buy more malls and office buildings in Canada and the U.S. H&R will also use the funds to help pay for the 50% partnership it formed with U.S. real estate firm Tishman Speyer in June 2014. Under the deal, the two companies will build an $875-million upscale apartment complex in Long Island City, New York. Construction is now underway, with completion scheduled for the end of 2017.

Meantime, H&R’s revenue slipped 1.8% in the three months ended September 30, 2015, to $297.1 million from $302.4 million a year earlier, after it sold less important properties. Cash flow per unit gained 6.5%, to $0.49 from $0.46. The REIT ended the quarter with a 96.0% occupancy rate.

The units trade at 11.0 times H&R’s forecast 2016 cash flow of $1.92 a unit. The trust pays a monthly distribution of $0.1125 a unit, for a 6.4% yield.

Recommendation in Canadian Wealth Advisor: BUY  

For key details on dividend payouts, and the role dividend stocks play in a balanced portfolio, read Dividend dates explained.

 

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