[CanadianCapitalist]

Want to own some real estate but cannot be bothered with tenants, clogged bathrooms and the dreaded midnight phone call? A far simpler way is to own securities called Real Estate Income Trusts (REITs) that allow you to become a landlord without the hassles of managing rental properties. REITs own shopping malls, apartment buildings and commercial real estate and pass on their income to unit holders.

A Primer on Canadian Real Estate Investment Trusts (REITs)

Canadian Capitalists articles on REITs

 

[Canadian Finance]

I wrote an article about buying the top 4 REITs instead of indexing this part of your portfolio.

Real Estate Investment Trust (REIT) Portfolio

 

[Fraserrc]

What are the advantages of Canadian REITS (true trust units) vs. Real Estate Corps such as FCR or BPO? I happen to like FCR which is nice because all the distribution is eligible dividend, and BPO has been pummled lately so its yield is also very attractive. Are there pros or cons that corps have over strict reits? Are dividends typically more stable than REITs?

Thanks,
Fraser

 

[CanadianCapitalist]

Are there pros or cons that corps have over strict reits? Are dividends typically more stable than REITs?

FCR was a new name to me... you learn something new everyday!

I think that the only significant difference between corps and REITs is their tax structure. REITs are required by law to flow through most of their earnings to investors at whose hands it is taxed. REITs are required by law to distribute most of their earnings (I believe it is 90%). Corps pay taxes on their income before paying dividends to shareholders but they can decide to reinvest as much of their profits as they want. But dividends are again taxed in an investor's hands.

From a strictly asset class point of view, I would think that it doesn't matter whether a real estate company is a REIT or a corp.

 

[Knight Rider]

Is there any major disadvantages of investing in an REIT, for example REI.UN, I mean, the trust is almost paying 1% returns per month, seems like a darned good deal to me? Some other trusts are paying well as well, ALA.UN (at its current price) would be returning about 14% per year.

 

[Bullseye]

Is there any major disadvantages of investing in an REIT, for example REI.UN, I mean, the trust is almost paying 1% returns per month, seems like a darned good deal to me? Some other trusts are paying well as well, ALA.UN (at its current price) would be returning about 14% per year.

Around half of that payout is ROC (return of capital), your own money being returned to you.

Hopefully capital gains will restore your capital, but it's quite possible that the unit value will decline and your original investment will shrink.

Given a 6% actual yield, they don't look as attractive any more, compared to some other options. Certainly a place for them in a diversified portfolio, though.

 

[Canadian Finance]

Because of the mixed bag of ROC, interest and dividends, I believe REITs are a perfect candidate for the TFSA.

 

[DrStan]

REITS are ideal for the TFSA. Mine is 100 % RioCan; same for my wife. It just makes sense to shelter it and to let it grow with substantial yield for a number of years. Plus it makes the accounting a lot simpler!

 

[Jon Chevreau]

My advisor likes REITs for something like 6 to 10% of the equity portfolio. I use iREIT in Canada and a Vanguard one for the U.S. Of course they've been hammered something like 50% since the downturn. Likely it's a good time to average down but I just can't bring myself to throw good money after bad.

 

[RI.ca]

REITinvestor upgrades Calloway REIT & increases target to $11.50/unit

REITinvestor.ca issues upgrade to #2 Ranking & estimates Calloway distribution to be safe for the remainder of 2009 and increased its target to $11.50/ unit.

Calloway REIT (CWT.UN - TSX) May 7, 2009
REITinvestor.ca issues upgrade to #2 Ranking & estimates Calloway distribution to be safe for the remainder of 2009 and increased its target to $11.50/ unit. REITinvestor.ca, a private subscriber-based independent rating and ranking service, believes that the current distribution of $0.1292 per month ($1.55 annualized) is secure for the remainder of 2009, assuming financial and economic conditions do not weaken substantially over the rest of the year. Today REITinvestor.ca is issuing an upgrade to #2 Ranking and increasing its 3-month target from $10.00 to $11.50. Following a review of Calloway’s Q1-0 (is this a typo? Should it read Q-1?) Report, REITinvestor.ca believes that management has improved its liquidity in preparation for difficulties in retail-leasing markets. REITinvestor.ca is maintaining its neutral #3 rating for CWT.UN for 2009. Of particular note to REITinvestor.ca: Calloway REIT continues to maintain high occupancy rates (98%) despite a spike in the number of unbudgeted vacancies; NOI was only slightly lower by 0.6% Q1 - 09 vs. Q4 – 08; CWT.UN was successful in negotiating a $105M secured revolving operating facility; CWT.UN reported that in April 2009, it replaced approximately $150M of $200M (4.51%) unsecured debentures that were due in September 2010. The new issue is 10.25%, due in 2014. CWT.UN finances development projects with various mortgages and loans that equal $256M, the quality and risk of which can not be ascertained. Calloway’s indebtedness is approaching a maximum of 60% of GBV. Management currently reports its D/GBV at 54.4% (excluding convertible debentures). CWT.UN units closed on Wednesday, May 6 at $11.75 per unit. For more information, visit REITinvestor.ca

DISCLOSURE: REITinvestor.ca maintains its own investment fund and does not currently hold units of CWT.UN. REITinvestor.ca does not provide investment advice, nor does it recommend the purchase or sale of securities including any REIT units it covers. Please consult your personal professional advisor before investing.

 

[RI.ca]

REITinvestor issues positive #2 rank to Boardwalk REIT- 3mo target remains $29.00/unt

REITinvestor.ca issues a positive #2 Ranking and estimates Boardwalk REIT’s distribution continues to be safe. 3-month target remains $29.00 / unit.

Boardwalk REIT (BEI.UN - TSX) May 14, 2009 REITinvestor.ca issues a positive #2 Ranking and estimates Boardwalk REIT’s distribution continues to be safe. 3-month target remains $29.00 / unit. REITinvestor.ca, a private subscriber-based independent rating and ranking service, today issues a positive #2 ranking for Boardwalk REIT, and believes that the current distribution of $0.15month ($1.80 annualized) is safe for the remainder of 2009. Following a review of Boardwalks REIT’s Q1-09 Report, REITinvestor.ca is holding its 3-month target steady at $29.00 for BEI.UN. Of particular note to REITinvestor.ca: Management reported that distributions for Q2 have been confirmed without change. Management estimates that additional proceeds of $140M will be gained on refinancing activity for the rest of 2009. Management is determined to raise as much cash as possible through refinancing and disposition of certain non-core assets, with the intention of capitalizing on available low mortgage rates. Management has modified its apartment marketing strategy to lower rents in order to maintain high occupancy, rather than hold rents up in the face of weakening demand in certain markets. Nevertheless, we note that average rents across the entire portfolio have increased approximately 5% from Q1-08 to Q1-09. Cash-on-hand as of March 31, 2009 increased to $169M in Q1-09 and overall liquidity to total remains excellent, at over 16%. BEI.UN units closed on Tuesday, May 13 at $27.75 per unit. For more information, visit REITinvestor.ca

DISCLOSURE: REITinvestor.ca maintains its own investment fund and does not currently hold units of BEI.UN. REITinvestor.ca does not provide investment advice, nor does it recommend the purchase or sale of securities including any REIT units it covers. Please consult your personal professional advisor before investing.

 

[RI.ca]

REITinvestor issues positive #2 rank to Dundee REIT- raises target to $18.50/unit

REITinvestor.ca issues a positive #2 Ranking and estimates Dundee’s distribution to be safe for the next 12 months. Target is today raised to $18.50 per unit.

Dundee REIT (D.UN - TSX) May 12, 2009 REITinvestor.ca issues a positive #2 Ranking and estimates Dundee’s distribution to be safe for the next 12 months. Target is today raised to $18.50 per unit. REITinvestor.ca, a private subscriber-based independent rating and ranking service, today issues a positive #2 ranking for Dundee REIT, and believes that the current distribution of $0.183 per month ($2.20 annualized) is safe for the next 12 months. Following a review of Dundee REIT’s Q1-09 Report, REITinvestor.ca is increasing its 3-month target from $16.88 to $18.50 for D.UN. Of particular note to REITinvestor.ca: Dundee has increased its AFFO to be nearly equal to its distribution through solid management performance on lease rollovers and new leases. Dundee reported in Q1-09 that it increased occupancy by 14,000 square feet, managing to release or renew 174,000 sq. ft. of the 162,000 sq. ft. that expired. Of the vacant space at period-end, approximately 70,000, or 23% has been committed. This leaves the vacancy rate at approximately 3%. Liquidity remains exceptional with cash and credit lines reported at $124M. We calculate the liquidity to total-debt ratio to be over 14%. Management expects to add $12M to its liquidity later this year through proceeds from excess mortgage refinancing. Mortgage renewals due in Q2 & Q3 of 2009 total $129M. Management reports that it is currently finalizing $54M of $75M due, and has begun the process of refinancing the balance due, without concern for liquidity. D.UN units closed on Monday, May 10 at $15.79 per unit. For more information, visit REITinvestor.ca

DISCLOSURE: REITinvestor.ca maintains its own investment fund and currently holds units of D.UN. REITinvestor.ca does not provide investment advice, nor does it recommend the purchase or sale of securities, including any REIT units it covers. Please consult your personal professional advisor before investing.

 

[RI.ca]

REITinvestor.ca lowers HR REIT Rank to favorable #2 and lowers target price to $9.00

H&R REIT (HR.UN - TSX) May 19, 2009 REITinvestor.ca lowers HR REIT Ranking to favorable #2 and lowers target price to $9.00 / unit. REITinvestor.ca, a private subscriber-based independent rating and ranking service, has completed its review of H&R REIT Q1 -09 Quarter Report and has lowered HR’s Ranking to #2 from #1, and revised its target price from $10.00 to $9.00. Of particular note to REITinvestor.ca: - HR reported a solid performance of its operations in Q1-09 with Distributable Cash increasing by 13%, as compared to Q1 -08. Other financial metrics, including AFFO, also improved in Q1. - HR REIT reported that it has secured $85M, which is 6.5% of its 5-year first mortgage financing for its Phase III Bell Corp. Centre, and is expected to close in Q3-09. - HR continues to sell non-core assets, and added $20M in net proceeds from dispositions in Q1-09. The effect of the sale will reduce the net earnings by $1.4M a year. - More clarity on the financing for The BOW revealed that Fairfax Financial received warrants for 28.6M units at a unit price of $7.00, in addition to its 11.5% yield for its debenture investment. These warrants may not be exercised before 2013, and REITinvestor.ca believes it will negatively affect the unit’s ability to rise in value. In addition, the agreed construction facility contains several requirements regarding the distribution to unit holders, including that the payout must not exceed $.06/unit monthly and other restrictive undertakings. These conditions could cause the distribution to be cut. - HR REIT estimates that it will require nearly $300M in investments from cash flow, mortgage proceeds and asset sales going forward to complete The BOW. HR reported that currently 80% of construction cost has now been locked for the $1.5B project. REITinvestor.ca estimates the final project to have a cap rate of 6% and will not to be accretive to HR once “takeout financing” is secured. HR continues to look for an equity partner for the project. - HR REIT’s credit facility of $200M expires in August 2009, and has not been renewed yet. - Of particular concern to REITinvestor.ca remains HR’s relatively low liquidity, which could affect their ability to survive should the economy further weaken. - H&R REIT has a manageable amount of mortgage refinancing due over the next 3 years. HR.UN units closed on Wednesday May 15th at $9.07 per unit on the TSX. For more information, visit REITinvestor.ca

DISCLOSURE: REITinvestor.ca maintains its own investment fund and currently is not holding units of HR.UN. REITinvestor.ca does not provide investment advice nor does it recommend the purchase or sale of securities including any REIT units it covers. Please consult your personal professional advisor before investing.

 

[RI.ca]

REITinvestor.ca lowers Artis REIT to a #4 Ranking and confirms 3-mo target at $7.25

REITinvestor.ca raises lowers Artis REIT to a negative #4 Ranking and confirms its 3-month target at $7.25


Artis REIT (AX.UN - TSX) April 23, 2009 REITinvestor.ca raises lowers Artis REIT to a negative #4 Ranking and confirms its 3-month target at $7.25. REITinvestor.ca, a private subscriber-based independent rating and ranking service, has today lowered its assessment of Artis to a negative #4 Ranking following a detailed review of Q1 – 09 Report. - Artis REIT reported solid operating income in Q1 – 09; however, Distributable Income remained relatively flat. - Management has settled its legal dispute for the purchase of Interplex II & III. - Artis REIT completed the sale of 2 Calgary office properties. REITinvestor.ca now estimates that Artis REIT has resolved its low liquidity position. - However, with the associated reduction in cash flows from the disposition, REITinvestor.ca now estimates that AX.UN’s payout ratio to be well over 100% in future. This trend will be clearer, following Q2 -09 reporting. - Looking towards 2012, we remain concerned that roughly 35% of Artis’ total mortgage financing comes due and it will need to be refinanced. AX.UN units closed on May 20, 2009 at $8.10 per unit on the TSX. For more information, visit REITinvestor.ca.

DISCLOSURE: REITinvestor.ca maintains its own investment fund and is not holding units of AX.UN. REITinvestor.ca does not provide investment advice nor does it recommend the purchase or sale of securities, including any REIT units it covers. Please consult your personal professional advisor before investing.

 

[Spidey]

Canadian Capitalist or Canadian Finance or Jonathon C., can you answer my question on Boardwalk REIT?

http://www.canadianmoneyforum.com/showthread.php?t=381

In a nutshell, I'm questioning why BEI.UN trades at 188 times book value when most other REITs are currently trading for less than book value. I'm sure I'm missing something as this REIT is considered a buy by many respected analysts. This is one of the most commonly held REITs in the country and despite posting the queries on a couple of forums, no one has been able to fully answer my questions.

 

[joes_k]

Long answer Spidey, I hope it helps.

Using a market value to book value metric for REITS can be very misleading for several reasons.

Any number of things can affect the numerator ie the market value. In Boardwalk's case, the market is pricing in a premium over commercial REITS because of the lower perceived risk of residential real estate ie., lower vacancy risk and lower financing risk. The two go together, any institution will more willingly lend, refinance or roll over debt for Boardwalk because their rental stream is almost guaranteed to be in place. Boardwalk also benefits because they can get CMHC financing insurance which again lowers risk and hence lowers rates at which they can get financing. Compare this to Calloway who recently issued a debenture at 10.25% to keep their balance sheet on side. H&R REIT had to issue a 11.5% debenture to finance their latest project. Just this gap in financing costs alone shows you how much risk the market is discounting commercial vs residential REITs.

The market is discounting the value of commercial REITS due to vacancy risk, which in turn hits cash flow which then drives down the value of the underlying real eatate.

On the book value side things can be really distorted. The majority of the book value will be the real estate at historical cost less depreciation. So if a REIT has an old portfolio that has significant depreciation booked then the book value will be low. I can't speak with certainty as to the age of Boardwalk's portfolio but just looking at the pictures on their web site I would have to say they are not new buildings so there is definitely some major depreciation booked. Compare this again with Calloway where they are constantly acquiring new real estate for the Walmart Smart Centres. Their comparative age to Boardwalk is much new and therefore higher book value.

In essence you cannot use the book value metric unless you know what the underlying assets are.

So ... applying the math, high value assigned by the market over a low book value give you the number you are looking at.

When investing in REITS you must know what class of real estate ie., residential, commercial, industrial, office the REIT owns. Each comes with its own valuation parameters and issues and therefore some valuation metrics won't work when applying them on a comparative basis.

Hope this helps

 

[joes_k]

Because of the mixed bag of ROC, interest and dividends, I believe REITs are a perfect candidate for the TFSA.

I'm not sure why this would be so. If part of your income is ROC, doesn't it make sense to hold this in a taxable account where the ROC component is tax deferred and then taxed at Capital Gains rates (lowest marginal rate) when sold.

Unless the REIT's distribution is not ROC (and there are some REITS that have no or very small ROC) then it would make more sense to me to shelter an investment that pays tax at the highest rates inside a TSFA.

 

[RI.ca]

REITinvestor.ca raises WRK.UN to a #2 Ranking but maintains 3-month target at $14.00.

Whiterock REIT (WRK.UN - TSX) May 27, 2009 REITinvestor.ca raises WRK.UN to a #2 Ranking but maintains 3-month target at $14.00. REITinvestor.ca, a private subscriber-based independent rating and ranking service, has increased Whiterock REIT to a positive #2 ranking but maintained its target price at $14.00. Following a review of Whiterock REIT’s Q1-09 report, REITinvestor.ca is of the opinion that the WRK.UN payout is safe for the remainder of 2009, but does not expect any price appreciation for the foreseeable future. Of note to REITinvestor.ca are the following: - REITinvestor.ca estimates that Distribution Payouts continue to exceed 100% of Distributable Income, and expects that this margin will increase in Q2 when the additional issued equity will require servicing. - Liquidity was greatly improved in Q1, as WRK.UN raised approximately $10M in equity issue and $22M new long term mortgage debt. - Whiterock reported 71% of 2009’s lease expiry has been completed at approximately 15% rental rate increases. - Occupancy weakened slightly from 98.8% in Q1-8 to 97.1 in Q1-09, but is expected to improve in Q2 & Q3. - 59% of revenue is derived from investment-grade tenants, the two largest by rental revenue being the SIQ (Quebec Government) & the Province of Ontario, which combined total 20% of annualized revenue. - Whiterock reported its line of credit facility of $42M to be fully repaid as of May 12, 2009, and is due to be renewed in June 2009. Longer term – Despite solid management skills of Whiterock, REITinvestor.ca continues to believe that the current distribution is unsustainable and will likely need to be cut in the next 24 – 48 months in order to replace the $55M in convertible debentures coming due. While it is difficult to project the economic situation 24 months forward, management appears ready to accept the challenge to improve Distributable Income and minimize the amount of the cut. Overall, we expect WRK.UN to trade in tight range near $14.00 for some time. With its current yield is an excess of 22% at today’s trading price of $15/ unit. REITinvestor.ca does not see much upside to the units at the present time, despite the high yield. WRK.UN units closed on May 26 at $15.10 per unit on the TSX. For more information, visit REITinvestor.ca.

DISCLOSURE: REITinvestor.ca maintains its own investment fund and has no position in WRK.UN. REITinvestor.ca does not provide investment advice nor does it recommend the purchase or sale of securities, including any REIT units it covers. Please consult your personal professional advisor before investing.

 

[CanadianCapitalist]

RioCan won't 'monkey around" with distribution

"There is a lot of chatter about [cutting the distribution]," said Mr. Sonshine, referring in part to the buzz in the analyst community that company is simply paying out more cash than it is actually pulling in. "I don't think anybody is worried about our ability to pay it. What has happened is about half the REITs in the U.S. have cut their distribution or are distributing stock instead of cash. Everybody knows the less you distribute the more cash you can keep in the company and that's a good thing with capital scarce. So analysts say 'what are you paying out that money for'."

 

[RI.ca]

REITinvestor.ca maintains a cautious #3 Ranking for CUF.UN and reduced its 3-month ta

REITinvestor.ca maintains a cautious #3 Ranking for CUF.UN and reduced its 3-month target at $13.00

Cominar REIT (CUF.UN - TSX) May 28, 2009 REITinvestor.ca maintains a cautious #3 Ranking for CUF.UN and reduced its 3-month target at $13.00 Following a review of Cominar REIT’s Q1-09 report, REITinvestor.ca is of the opinion that the CUF.UN payout will be strained, but safe, for the remainder of 2009. However REITinvestor.ca today lowered CUF.UN target price from $14.00 to $13.00. Of note to REITinvestor.ca are the following: - REITinvestor.ca estimates that Distribution Payouts will exceed 100% of Distributable Income going forward following the issuance of 4.8M units (approximately 10% of previous outstanding units) in April 2009. - Liquidity was improved by the issuance of units. However, REITinvestor.ca estimates that Cominar REIT will require most of its available credit facility to finance its committed development pipeline, which is estimated by management to be $50M for the remainder of 2009. - It remains uncertain to REITinvestor.ca whether Cominar REIT will be able to fill all of its current 671,420 sq ft development projects at the projected rental rates. In particular, the 396,000 sq.ft. Complexe Jules-Dallaire Class A office project in Quebec City is currently only 33% leased and is scheduled to begin accepting tenants later in 2009. - Cominar REIT reported that “properties under development and land held for development” increased from approximately $94M in Q4-08 to $135M in Q1-09. The direct carrying cost of these properties is a concern to REITinvestor.ca in the future. CUF.UN units closed on May 28 at $14.70 per unit on the TSX. For more information, visit REITinvestor.ca.

DISCLOSURE: REITinvestor.ca maintains its own investment fund and has no position in CUF.UN. REITinvestor.ca does not provide investment advice nor does it recommend the purchase or sale of securities, including any REIT units it covers. Please consult your personal professional advisor before investing.