Check out the Canadian REIT guide from Deloitte:
http://www.deloitte.com/view/en_CA/.../a2a8c90b0d1fb110VgnVCM100000ba42f00aRCRD.htm
http://www.deloitte.com/view/en_CA/.../a2a8c90b0d1fb110VgnVCM100000ba42f00aRCRD.htm
REI.UN Investment Trust Questions
I have $5000 sitting untouched in my Scotia Itrade TFSA and am considering doing something, with at least some of it.
I've been keeping my eye on the RioCan Real Estate Investment Trust (REI.UN). It pays a $0.23 dividend every month. Could someone please explain how these trusts pay the dividends. From what I've heard, its sometimes a return in capital, though I'm not exactly sure.
If someone could clarify how these trusts work, it would be appreciated.
Thanks!
I've been keeping my eye on the RioCan Real Estate Investment Trust (REI.UN). It pays a $0.23 dividend every month. Could someone please explain how these trusts pay the dividends. From what I've heard, its sometimes a return in capital, though I'm not exactly sure.
If someone could clarify how these trusts work, it would be appreciated.
Thanks!
1 - 11 of 11 Posts
hmmm, I just see .115 a month, there did you see .23?
Thanks for pointing that out. I was checking out Google Finance, though after checking the RioCan website I see .115 as well.
I guess my main question is, is the .115 a month cash distributions, or something else?
I guess my main question is, is the .115 a month cash distributions, or something else?
Don't trust Google Finance for dividend amounts.
I always go straight to the company's website for that info and they frequently list how the distribution is made up.
I always go straight to the company's website for that info and they frequently list how the distribution is made up.
Thanks for the advice lister. Will definitely do that from now on.Don't trust Google Finance for dividend amounts.
I always go straight to the company's website for that info and they frequently list how the distribution is made up.
If someone could answer the question re distributions, it would be appreciated. It seems like with a .115 per month distribution, 8% returns is about the best investment I can make right now for my TFSA. Boardwalk REIT doesn't do bad either at 5%.
Yes, roughly 50% of the distributions will be classified as return of capital.If someone could answer the question re distributions, it would be appreciated. It seems like with a .115 per month distribution, 8% returns is about the best investment I can make right now for my TFSA. Boardwalk REIT doesn't do bad either at 5%.
https://riocan.com/_bin/tax/taxInfo.cfm
Thanks CC! Does this return of capital mean that they are paying me back for my shares, and they are "gone" after a time if I didn't by more, or is it just a classification for tax purposes. I would put RIO.UN in my TFSA so there would be no tax.Yes, roughly 50% of the distributions will be classified as return of capital.
https://riocan.com/_bin/tax/taxInfo.cfm
Some of it is truly return of capital because non-cash expenses such as depreciation and amortization are passed through to unit holders. However, these capital expenses were incurred at some point, so really an investor is getting some of their capital back.Thanks CC! Does this return of capital mean that they are paying me back for my shares, and they are "gone" after a time if I didn't by more, or is it just a classification for tax purposes. I would put RIO.UN in my TFSA so there would be no tax.
How you interpret the status of distributions depends on your beliefs about depreciation of buildings. The tax status of a distribution does not necessarily reflect the economic status of it.
Start by comparing the year's distribution to the estimated reported NetIncomePerShare. To the extent that you accept accountant's use of depreciation, the extra distribution is a 'return OF capital'. You should NOT consider ROC as any kind of 'income'.
All distributions shrink the value of a business by the same amount as the distribution. The payment simply moves value from the company into your pocket. To the extent that the company earns a profit to replace the distribution, its value stays stable. If the distribution is larger than the profits earned, the company gradually shrinks.
Income Trusts and REITs have got away with this by replacing the cash distributions with borrowed money, or by issuing new shares (which imparts a benefit to existing shareholders because the shares are priced far above book value).
-------------
There are two adjustments you should consider to the reported NetIncome. The increase in market value of ppty and depreciation. Start with market values. The Income Statement will not recognize any increase in the resale value of a ppty until it is actually sold. You know that values have doubled in the past 5 years, but to the extent the ppty was never bought/sold that value is not reflected on the Balance Sheet, or the gain included in the Income Statement.
It can be argued that excess distributions are on account of this capital gain that has not been realized yet. IMO I completely disregard this because what I want to pay for the shares depends on the net rent revenues it generates. Rents have NOT kept up, at all, with ppty values.
----------
About a decade ago the rules for depreciation changed. Instead of charging off 2% of the value of buildings each year, they now have to charge off 4%. Personally I think the 2% rate is a more accurate economic measure, so I 'restate' the reported Net Income with my own calculation --- then proceed from there.
A lot of people dismiss depreciation completely by arguing that the value of real-estate in total (land plus building) goes up in value and does not depreciate. IMO land increases in value but buildings do not. When you compare the price of a bare lot in Vancouver, to that with a house, you see little difference.
Start by comparing the year's distribution to the estimated reported NetIncomePerShare. To the extent that you accept accountant's use of depreciation, the extra distribution is a 'return OF capital'. You should NOT consider ROC as any kind of 'income'.
All distributions shrink the value of a business by the same amount as the distribution. The payment simply moves value from the company into your pocket. To the extent that the company earns a profit to replace the distribution, its value stays stable. If the distribution is larger than the profits earned, the company gradually shrinks.
Income Trusts and REITs have got away with this by replacing the cash distributions with borrowed money, or by issuing new shares (which imparts a benefit to existing shareholders because the shares are priced far above book value).
-------------
There are two adjustments you should consider to the reported NetIncome. The increase in market value of ppty and depreciation. Start with market values. The Income Statement will not recognize any increase in the resale value of a ppty until it is actually sold. You know that values have doubled in the past 5 years, but to the extent the ppty was never bought/sold that value is not reflected on the Balance Sheet, or the gain included in the Income Statement.
It can be argued that excess distributions are on account of this capital gain that has not been realized yet. IMO I completely disregard this because what I want to pay for the shares depends on the net rent revenues it generates. Rents have NOT kept up, at all, with ppty values.
----------
About a decade ago the rules for depreciation changed. Instead of charging off 2% of the value of buildings each year, they now have to charge off 4%. Personally I think the 2% rate is a more accurate economic measure, so I 'restate' the reported Net Income with my own calculation --- then proceed from there.
A lot of people dismiss depreciation completely by arguing that the value of real-estate in total (land plus building) goes up in value and does not depreciate. IMO land increases in value but buildings do not. When you compare the price of a bare lot in Vancouver, to that with a house, you see little difference.
The following article in The Globe and Mail notes that RioCan's $1.38 distribution is more than its 2009 funds from operations of $1.25. Funds from operations does not include maintenance and other capital expenses.
https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20091102/RRIOCAN02ART1901
https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20091102/RRIOCAN02ART1901
1 - 11 of 11 Posts
- This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Canadian Money Forum
A forum community dedicated to Canadian personal finance enthusiasts. Come join the discussion about investing, stock portfolios, equities, frugality, real estate, market trading, taxation, retirement, and more!
Full Forum Listing
Explore Our Forums
