investment trusts

In evaluating investments, many investors focus on what we’d call ‘investment outputs’, such as earnings, dividends, cash flow, return on equity, sales growth and so on. These are all important, of course, but you shouldn’t focus on them to the exclusion of what you might call ‘investment inputs’, such as the factors we use in assigning our Successful Investor quality ratings. Investment inputs are harder to work with than investment outputs, since it takes a judgment call to determine their risk or value. To give you a better idea of what we mean, here’s a list of a dozen investment inputs that we look at before recommending an income trust:...

IUNITS S&P/TSX CAPPED REIT INDEX FUND $14.22 (Toronto symbol XRE; buy or sell through a broker) holds 12 Canadian real estate investment trusts (REITs). In the Capped REIT Index, the weight of any one REIT, in terms of market capitalization (unit price times units outstanding), is limited to 25%. RioCan REIT makes up 24.6% of the index’s value; H&R REIT, 14.7%; Summit REIT, 10.2%; Canadian REIT, 7.8%; Calloway REIT, 8.3%; Boardwalk REIT, 6.2%; Retirement Residences REIT, 5.4%; Canadian Apartment Properties REIT, 5.3%; Legacy Hotels REIT, 4.3%; Chartwell Seniors Housing REIT, 4.6%; Innvest REIT, 3.6%; and Primaris Retail REIT, 5.0% We’ve glad to see that the top holding is RioCan, one of our favourite REITs. In fact, all of the top four holdings are among our recommendations. Note that iUnits REIT holds a couple of REITs we don’t recommend....

High quality Real Estate Investment Trusts, or REITs, are among the most stable of the royalty and investment trusts. That’s because they own non-depleting assets, and can lock in lease rates and financing costs for long terms. REITs we recommend hold top-quality assets. In contrast, many other types of trusts hold low-quality assets in volatile industries such as resources and commodities, sugar production or restaurants. These trusts expose holders to hidden business risks that could have a sudden, devastating effect on their cash flow and yields. The best of the REITs have good management and balance sheets strong enough to weather an economic downturn. They also have high-quality tenants, and carefully match their debt with their leases. They are also taking advantage of low rates to refinance long-term mortgages. In some cases they have room to build or expand on existing properties....