When analyzing a Real Estate Investment Trust (REIT), one of the primary metrics to look for is the Funds From Operations (FFO), and Adjusted Funds From Operations (AFFO). FFO is generally calculated by taking net income and subtracting depreciation. The logic here is that depreciation is a non-cash expense and unlike most businesses with fixed plants and equipment investments, which definitely lose value over the term of use, real estate property rarely loses value and often appreciates. This metric is generally a good representation of cash flows that an investor may expect to generate, therefore looking at FFO and AFFO growth over time is highly beneficial. In terms of valuation, Price/FFO can measure the relative value of the REIT. Within the small cap Canadian REIT space, the average P/FFO is 10.9x and the REITs on our list are trading at a discount to this.
Inovalis Real Estate Investment Trust (TSX: INO.UN) – $9.23
Commercial REITs
Inovalis Real Estate Investment Trust (the REIT) is an open-ended real estate investment trust. The REIT’s properties include Rue Marjolin, Rue de Sentier, Arc EnCiel, Montrouge, Boulevard des Italiens, 4 Avenue Didier Daurat, Gillitzerstrasse, Rosenheim, Bad Homburg, Frankfurter Ring, Munich and Dusseldorf. The REIT’s initial holdings consist of four office properties in France and Germany, comprising approximately 529,267 square feet (49,170 square meters) of Gross Leasable Area (GLA). In July 2014, Inovalis Real Estate Investment Trust completed the acquisition on a 50-50 Joint-Venture basis of an office property (Property) located in Germany.
- Market Cap: $140,920,025
- P/FFO: 9.8x
- FFO Change (1 year): 62.7%
- FFO (2014): $11,474,000
Milestone Apartments Real Estate Investment Trust (TSX: MST.UN) – $13.55
Residential REITs
Milestone Apartments Real Estate Investment Trust (the REIT) is an open-ended real estate investment trust. The REIT’s portfolio consists of 54 multi-family, garden-style residential properties, comprising 17,648 units that are located in 11 metropolitan markets throughout the Southeast and Southwest United States. The REIT operates its portfolio through its internal property management company, Milestone Management, providing management services to approximately 35,000 units across the United States. The Milestone Group is the external asset manager of the REIT.
- Market Cap: $723,511,983
- P/FFO: 10.4x
- FFO Change (1 year): 53.2%
- FFO (2014): $65,240,879
BTB Real Estate Investment Trust (TSX: BTB.UN) – $4.96
Commercial REITs
BTB Real Estate Investment Trust (BTB) is a Canada-based open-ended real estate investment trust. The Company owns properties in eastern Canada. BTB owns and manages a portfolio of 73 commercial, industrial and office properties totaling approximately 5.1 million square feet. The Company’s properties are predominantly situated in and around Montreal, Quebec City and Ottawa. The Company’s operating segments include commercial, office, industrial and general purpose.
- Market Cap: $169,992,372
- P/FFO: 9.4x
- FFO Change (1 year): 30.9%
- FFO (2014): $15,226,000
Morguard North American Residential Real Estate Investment Trust (TSX: MRG.UN) – $10.15
Residential REITs
Morguard North American Residential Real Estate Investment Trust is a Canada-based open-ended real estate investment trust (REIT). The REIT was formed to own multi-unit residential rental properties across Canada and the United States. The REIT’s investment objectives are to generate stable and growing cash distributions to unitholders on a tax-efficient basis; enhance the value of its assets and maximize long-term value of the units through active asset and property management, and to expand its asset base and increase Adjusted Funds From Operations (AFFO) per unit primarily through acquisitions and improvement of its properties through capital expenditures. The REIT’s property portfolio consists of approximately 14 Canadian multi-unit residential properties and approximately 30 United States multi-unit residential low-rise properties. The properties are primarily located in Ontario, Alberta, Alabama, Colorado, Florida, Georgia, Louisiana, North Carolina and Texas.
- Market Cap: $296,966,558
- P/FFO: 10.1x
- FFO Change (1 year): 28.8%
- FFO (2014): $47,516,000
Dream Industrial Real Estate Investment Trust (TSX: DIR.UN) – $8.64
Commercial REITs
Dream Industrial REIT, formerly Dundee Industrial Real Estate Investment Trust, is an open-ended real estate investment trust governed by the laws of the Province of Ontario. The Company’s portfolio comprises industrial properties located in urban centers across Canada. On July 19, 2013, the Company, through its subsidiary Dundee Industrial Atlantic Acquisition Inc. (Dundee Industrial Atlantic), acquired the remaining interest of C2C Industrial Properties Inc. (C2C) by way of an amalgamation of Dundee Industrial Atlantic with C2C to form DIR Industrial Properties Inc.
- Market Cap: $501,697,645
- P/FFO: 8.9x
- FFO Change (1 year): 14.5%
- FFO (2014): $70,484,000
