investment trusts
Real estate investment trusts (REITs) resemble income trusts, but with a key difference: REITs invest in income-producing real estate, such as office buildings and hotels. The best REITs have good management and balance sheets strong enough to weather an economic downturn. They also have high-quality tenants, and they carefully match their debt obligations with income from their leases. The best ones are still doing well, despite the weak economy, and are taking advantage of low interest rates to refinance long-term mortgages. We advise against overindulging in REITs. But high quality REITs can make attractive, low-risk additions to your portfolio....
Most real estate investment trusts (REITs), including our recommendations, are exempt from Ottawa’s new tax on income-trust distributions, which comes into effect on January 1, 2011. As a result, these REITs should continue to attract investor interest as the tax prompts more trusts to convert to corporations and cut their distributions. RIOCAN REAL ESTATE INVESTMENT TRUST $23.15 (Toronto symbol REI.UN; Units outstanding: 250.9 million; Market cap: $5.8 billion; SI Rating: Average; Dividend yield: 6.0%; www.riocan.com) is Canada’s largest REIT. RioCan has interests in 289 shopping malls across Canada, including 11 under development. In all, these properties contain over 66 million square feet of leasable area. The trust has a 97.1% occupancy rate. RioCan is Canada’s largest owner of neighbourhood shopping centres, which are enclosed malls in smaller cities. But the trust’s strongest growth is in its “New Format” malls, in the suburbs of larger cities. RioCan is Canada’s largest owner of these malls, which have lots of parking and room for new building, and mainly consist of big-box stores, or large stores that are usually part of a chain....
ISHARES CDN REIT SECTOR INDEX FUND $14.04 (Toronto symbol XRE; buy or sell through a broker; ca.ishares.com) holds the 13 Canadian real estate investment trusts (REITs) in the S&P/TSX Capped REIT Index. The weight of any one REIT is limited to 25% of iShares CDN REIT Sector Index Fund’s value. iShares CDN REIT’s expenses are just 0.55% of its assets. RioCan REIT is the fund’s largest holding, at 25%, followed by H&R REIT (12.7%), Canadian REIT (9.3%), Calloway REIT (8.2%), Boardwalk REIT (7.1%), Primaris Retail REIT (5.6%), Dundee REIT (5.4%), Chartwell Seniors Housing REIT (5.2%), Canadian Apartment Properties REIT (5.1%), Cominar REIT (4.9%), Allied Properties REIT (3.7%), Extendicare REIT (3.7%) and Artis REIT (3.7%)....
One key criteria for deciding if a company falls into the manufacturing sector is whether it behaves in a cyclical or non-cyclical manner. A manufacturing company is subject to the ups and downs of the economic cycle. In contrast, consumer firms benefit from continuous and often habitual use of their products and services, so they have much more stability in their sales and earnings, regardless of the state of the economy. It doesn’t matter who the company sells to. For instance, consumers buy cars and soup. But car-makers are subject to wide swings in demand, so they go in the Manufacturing sector. Soup demand is far more stable, so soup makers go into the Consumer sector. While the soup company “manufactures” its products, its customers buy them in good or bad economic times. Real-estate investment trusts (REITs) mostly lease office or industrial space to firms that go through swings along with the rise and fall of the economy. So we place them in the Manufacturing sector. We’d also place REITs with residential holdings in the Manufacturing sector (actually, the full name we use is Manufacturing & Industry sector). Consumers buy soup every day, but they can go for months or years without buying a new car or moving to a new home....
ISHARES CDN REIT SECTOR INDEX FUND $12.72 (Toronto symbol XRE; buy or sell through a broker) holds the 11 Canadian real estate investment trusts (REITs) in the S&P/TSX Capped REIT Index. The weight of any one REIT is limited to 25% of this index’s value. RioCan REIT is the fund’s largest holding, at 25%, followed by H&R REIT (14.2%), Canadian REIT (10.7%), Boardwalk REIT (8.6%), Calloway REIT (8.4%), Primaris Retail REIT (6.7%), Canadian Apartment Properties REIT (5.8%), Cominar REIT (5.5%), Chartwell Seniors Housing REIT (5.4%), Dundee REIT (4.9%) and Extendicare REIT (3.8%). The fund yields 5.6%. Most REITs, including those held by the iShares CDN REIT Sector Index Fund, are exempt from Ottawa’s new income-trust tax, which takes effect on January 1, 2011. That will help keep the fund’s distributions high. iShares CDN REIT’s expenses are 0.55% of its assets....
Most real estate investment trusts (REITs), including our recommendations, are exempt from Ottawa’s new tax on income-trust distributions, which comes into effect on January 1, 2011. As a result, these REITs should attract more investor interest in the second half of 2010, as the tax prompts more trusts to convert to corporations and cut their distributions. RIOCAN REAL ESTATE INVESTMENT TRUST $19.32 (Toronto symbol REI.UN; Units outstanding: 242.9 million; Market cap: $4.7 billion; SI Rating: Average; Dividend yield: 7.1%) is Canada’s largest REIT. RioCan has interests in 265 shopping malls across Canada, including 12 under development. In all, these properties contain over 60 million square feet of leasable area. The trust has a 97.0% occupancy rate. In the three months ended March 31, 2010, RioCan’s revenue was $214.6 million. That’s up 12.3% from $191.1 million a year earlier. Cash flow per unit rose 12.5%, to $0.36 from $0.32. The trust paid higher interest costs during the quarter, but contributions from newly acquired shopping centres and gains on property sales helped offset these expenses. The trust’s units yield 7.1%....
One key aspect of a marketer’s job is to describe the features of whatever he or she is selling as a benefit to the potential buyer. Understanding this process can help you get past the marketing and get better value when you make consumer purchases. It can be an even bigger help in keeping you out of bad financial investments. Recently a member of Pat McKeough’s Inner Circle asked about a little-known income investment he had heard about that yields 9%. That’s a super yield at a time of low interest rates like today. But a high yield is always a sign that you need to look for hidden risks in financial investments. We looked and there they were, dressed up as investor benefits.
This real estate investment trust’s small town focus is a risk, not a benefit
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The federal government’s new tax on income trust distributions comes into effect just under seven months from now, on January 1, 2011. This new tax will put trusts on an equal tax footing with regular corporations. Many trusts have already converted to corporations in response, or plan to do so later in 2010 or in 2011. Others will continue to operate as trusts, although they may have to cut distributions to pay the new tax.
Tax exemption sets real estate investment trusts apart from other income trusts
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Most real estate investment trusts (REITs), including our two recommendations below, are exempt from Ottawa’s income-trust tax, which comes into effect on January 1, 2011. Even so, we still advise against overindulging in REITs. But if you stick with REITs that have steady cash flows and sound balance sheets, like the two we recommend on this page, you should earn attractive long-term returns at relatively low risk. ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $19.87 (Toronto symbol AP.UN; Units outstanding: 39.1 million; Market cap: $777.1 million; SI Rating: Extra Risk; Dividend yield: 6.6%) owns office buildings in Toronto, Montreal, Quebec City and Winnipeg. These mainly Class I properties contain over 5.7 million square feet of leasable area....
ISHARES CDN REIT SECTOR INDEX FUND $12.05 (Toronto symbol XRE; buy or sell through a broker) holds the 10 Canadian real estate investment trusts (REITs) in the S&P/TSX Capped REIT Index. The weight of any one REIT is limited to 25% of this index’s value. RioCan REIT is the fund’s largest holding, at 23.7%, followed by H&R REIT (15.7%), Canadian REIT (12.0%), Boardwalk REIT (9.9%), Calloway REIT (9.1%), Primaris Retail REIT (6.8%), Canadian Apartment Properties REIT (6.5%), Chartwell Seniors Housing REIT (5.8%), Cominar REIT (5.7%) and Extendicare REIT (4.2%). The fund yields 5.4%. Most REITs, including those held by the iShares CDN REIT Sector Index Fund, are exempt from Ottawa’s new income-trust tax, which takes effect on January 1, 2011. That will keep the fund’s distributions high. Its expenses are 0.55% of its assets....