One new skyscraper—and fewer retail stores—help support this REIT’s high yield

Faced with a changing real estate market in which retail properties lose ground to online shopping, the leading REITs will be those that make the most successful adjustments.

This Canadian REIT is completing a major skyscraper in New York City while it sells a group of retail and other less important properties. This should give the company a superior balance of industrial, office, retail and residential properties and help sustain its high-yielding distribution.


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H&R REIT (Toronto symbol HR.UN; www.hr-reit.com) owns 37 office properties, 153 retail properties, 99 industrial properties, 12 residential properties and 5 developmental projects in Canada and the U.S. It has a 33.6% stake in 225 other properties.

In all, these holdings include 42 million square feet of leasable space. The REIT’s overall occupancy rate is a high 96.0%.

The trust’s revenue fell 2.6% for the quarter ended September 30, 2017, to $289.6 million from $297.3 million a year earlier. The decline was largely due to the fact that the trust recently sold $1.08 billion worth of its less-important properties to pay down debt and invest in more promising properties.

However, cash flow rose 2.9% in the quarter, to $141.0 million from $136.9 million. Due to more units outstanding, cash flow per unit improved 2.2%, to $0.46 from $0.45.

Since January 1, 2016, H&R has sold $1.08 billion of its properties and used the proceeds to repay debt. It has also acquired $530.4 in new properties, primarily in the U.S.

Dividend Stocks: New York City complex due to see first tenants early in 2018

The company announced that it plans to sell all 79 of its wholly-owned U.S. retail properties. H&R puts the total value of these properties at US $750 million and it will begin with a sale of properties worth $250 million in the first quarter of 2018.  It also plans to sell off the 12 jointly-owned U.S. industrial properties it holds, valued at US $145 million.

Construction continues on a major U.S. project, H&R’s $1.2 billion, 1,871-unit apartment complex in New York City. This is a joint-venture partnership with U.S. real estate firm Tishman Speyer. Tenants are scheduled to begin occupying the first tower in early 2018. When occupied, the building should add $23.0 million U.S. to H&R’s annual cash flow.

H&R raised its monthly distribution 2.2% in December 2016. The $1.38 annual rate yields 6.6%. That payout is roughly 76% of cash flow. The units yield a high 6.5%.

The REIT’s units trade at a low 11.4 times its forecast 2018 cash flow of $1.85 a unit.

Recommendation in TSI Dividend Advisor: H&R REIT is a buy.

For our recent report on a U.S. dividend stock that we rate as a buy, read Shift to the cloud sends this tech giant even higher.

For our views on how Canadians can make the most of an important benefit, read Take full advantage of the Canadian Dividend Tax Credit.

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