Alex Cutulenco
| Ubika Research Analyst | January 28, 2016: For many North American investors, 2016 is off to a poor start. Because of this, money flow is seeing a change from riskier securities to safer, income-producing assets, such as real estate. Investors interested in real estate investing might want to take a look at the three REITs on our list.
This is an investment as old as land ownership itself. A person will buy a property and rent it out to a tenant. Your return is a simple calculation of the rent you get paid (minus whatever operating upkeep you require on the property), divided by the purchase price of the property. However, not all investors have the necessary funds to purchase (or mortgage) a whole property (or even a residential/commercial building). For these type of investors, Real Estate Investment Trusts (REIT) are a potential alternative.
Figure 1: Comparison Table of the Top 15 Canadian REITs
* FFO, AFFO, and Distributions to Unitholders were taken as a last fiscal quarter, annualized, figure
Source: SEDAR, Thomson Reuters (01/27/2016)
REITs payout its earnings via distributions to unitholders. Therefore, the distribution yield (calculated as a percentage of the unit price of a REIT) is a good measure of the return an investor may potentially realize in the future. From a look at the top 15 Canadian REITs, the average distribution yield is 9%.
Additionally, investors should focus on a REIT’s relative valuation to its peers. One solid valuation metric in the industry is Price/Net Asset Value (or Price/Book Value), which shows how much each dollar of a company’s equity is worth. Equity (or book value) is important because it is a measure of the value a REIT may recoup if it were to sell off all of its assets, and pay out its liabilities. Shareholder’s Equity is what remains. It’s interesting to note that the average P/B multiple was 1.0x – suggesting that every dollar of equity is valued at a single dollar.
In total three companies stood out on the list, appearing in blue within Figure 1. These companies display the best financial metrics in comparison to its industry peers, in terms of valuation, yield, and payout ratio. Investors interested in real estate investing might want to take a look at the three REITs on our list.
Cominar Real Estate Investment Trust (TSX: CUF.UN) – $14.36
Diversified REITs
Cominar Real Estate Investment Trust is a diversified real estate investment trust (REIT) in Canada. The Company owns and manages a portfolio of approximately 563 properties, including 136 office buildings, 196 retail buildings and 231 industrial and mixed-use buildings located in Quebec, Ontario, the Atlantic Provinces and Western Canada, representing a total leasable area of 45.3 million square feet. The Company’s real estate portfolio is diversified among three sectors, which include office, retail and industrial and mixed-use.
- Revenue (LTM): $889,618,000
- Total Equity (LFQ): $3,650,147,000
Dream Office Real Estate Investment Trust (TSX: D.UN) – $15.35
Commercial REITs
Dream Office Real Estate Investment Trust (the Trust), formerly Dundee Real Estate Investment Trust, is a Canada-based open-ended investment trust. The Trust operates in segments: Western Canada, Calgary downtown, Calgary suburban, Toronto downtown, Toronto suburban and Eastern Canada. It is engaged in building and maintaining a diversified portfolio of office properties in Canada, based on an established platform, and providing cash distributions to unitholders and managing distributions over time. Its ownership interests includes 177 office properties (207 buildings) totaling approximately 24.3 million square feet of Gross leasable area (GLA).
- Revenue (LTM): $699,073,000
- Total Equity (LFQ): $3,593,919,000
Crombie Real Estate Investment Trust (TSX: CRR.UN) – $13.14
Commercial REITs
Crombie Real Estate Investment Trust (Crombie) is an unincorporated open-ended real estate investment trust (REIT). Crombie invests in income-producing retail, office and mixed use properties in Canada, with a growth strategy focused primarily on the acquisition of grocery-anchored and drug store-anchored retail properties. Crombie owns a portfolio of 255 commercial properties in 10 provinces, comprising approximately 17.4 million square feet of gross leasable area (GLA). Crombie instituted a distribution reinvestment plan (DRIP) whereby Canadian resident REIT unitholders may elect to automatically have their distributions reinvested in additional REIT units.
- Revenue (LTM): $367,621,000
- Total Equity (LFQ): $1,153,305,000
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Alex can be reach at: alex@gravitasfinancial.com
