Today, we look at two Real Estate Investment Trusts (REITs) that are pursuing different avenues of growth. In the past year, H&R REIT sold a number of properties, in part to free up cash for further acquisitions and to fund a partnership with a U.S. firm. Canadian REIT aims to build from within, developing the properties it already owns. One pays a monthly dividend, the other pays quarterly, and both look secure.
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 46.1 million square feet of leasable space.
In December 2014, the REIT sold part ownership of 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 has 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. The trust also held on to full ownership of 14 other industrial properties.
The REIT 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 will start this year, with completion scheduled for 2017.
Meantime, H&R’s revenue fell 4.0% in the three months ended March 31, 2015, to $299.3 million from $311.9 million a year earlier, after it sold less important properties. Cash flow per unit gained 2.1%, to $0.48 from $0.47. The trust ended the quarter with a 97.6% occupancy rate.
The units trade at 12.3 times H&R’s forecast 2015 cash flow of $1.80 a unit. The REIT pays a monthly distribution of $0.1125 a unit, for a 6.1% yield.
Recommendation in Canadian Wealth Advisor: BUY
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The current issue of Canadian Wealth Advisor features our portfolio of recommended REITs and trusts. If you want to add solid income investments to your portfolio, you won’t want to miss it.
Dividend stocks: Canadian REIT raises quarterly distribution by 2.9% for a yield of 4.3%
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 June 30, 2015, Canadian REIT’s revenue rose 5.5%, to $111.5 million from $105.7 million a year earlier. Cash flow per unit gained 2.7%, to $0.76 from $0.74.
Canadian REIT generally aims to grow by developing its own properties rather than through large acquisitions. Over the next few years, it’s spending $660 million to add about 3.1 million square feet of space. To cut its risk, the trust takes on partners to help it carry out big projects.
The units trade at 13.7 times the REIT’s forecast 2015 cash flow of $3.03 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%.
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