Comments on: H&R REIT Looks Cheap

By: epps

epps — Wed, 23 Jan 2008 14:20:01 +0000

How does this work for the long term?
The EPS is steadily decreasing while the payouts are increasing. In ‘06 the EPS was 0.79 while the payout was 1.33. Doesn’t seem sustainable to me.

By: FourPillars

FourPillars — Wed, 23 Jan 2008 15:37:29 +0000

I was thinking of edging into REITs.

I was thinking originally of RioCan since it’s not a bad proxy for XRE but I’m wondering if VNQ (Vanguard REIT ETF) might be a better choice since I’d like to be diversified and increase US$ exposure.

Any opinions?

By: Financial Jungle Guy

Financial Jungle Guy — Wed, 23 Jan 2008 17:28:25 +0000

Earnings don’t reflect the true profibility of REITs because management depreciates [i]appreciating[/i] assets on paper to improve tax efficiency. In REITs, earnings are for the taxman to see, not investors. For us, we care more about funds from operations.

By: Dividends4Life

Dividends4Life — Wed, 23 Jan 2008 19:33:25 +0000

Good read! REITs certainly have a place in my portfolio, though I am currently over-allocated at this time. Their high yields help to offset the lower yields from traditional “dividend” companies. it is all about balancing risk and returns.

Best Wishes,
D4L

By: Rod Payne

Rod Payne — Wed, 23 Jan 2008 21:52:15 +0000

Spooky. I’ve been looking at buying a rental property or properties for a while now. Then my wife saw the episode of “Holmes on Homes” where the tenants turned the rentap into a grow-op. We had a long conversation over the weekend that ended in me deciding to some researching on REITs. Thanks for doing all the legwork for me!

By: dropby

dropby — Wed, 23 Jan 2008 22:45:41 +0000

Is HR the trust with the highest yield right now? How about the rule that you should not buy the one with the highest yield, but the one with higher yield?

By: Financial Jungle Guy

Financial Jungle Guy — Wed, 23 Jan 2008 23:27:43 +0000

dropby - can you share the link that shows HR.un having the highest yield in the real estate space?

By: Uncle Pickles

Uncle Pickles — Thu, 24 Jan 2008 00:29:08 +0000

I don’t think the REIT sector is finished correcting. I’ll wait for the sector to stabilize. I did a quick look at First Capital (FCR) and I like it better than HR.un, plus you get the DTC. No rush to buy yet as I haven’t researched these companies thoroughly.

By: Financial Jungle Guy

Financial Jungle Guy — Thu, 24 Jan 2008 02:06:18 +0000

UnclePickle - I have a lousy track record in timing the bottom. I wouldn’t know when the REIT sector stabilizes. Looking back over the previous 10 years, none of the REIT rallies were preceded by stabilization in prices, so I don’t see why it should be different this time.

In my opinion and fast forwarding the next 10 years, the greatest risk isn’t whether you bought at $1 or $2 cheaper, but whether you invested in REITs at all around these bargain prices.

Keep us posted once you’re done researching FCR. I like to know if you still hold the same opinion and also the rationale behind it.

By: ThickenMyWallet

ThickenMyWallet — Thu, 24 Jan 2008 17:38:49 +0000

What is the NAV on H&R? Riocan has, on and off, been trading below its NAV which puts it into bargain territory.

Warning bells always go off when the payout ratio is above 100%. This means its losing cash, issuing more shares (robbing Peter to pay Paul), or it doesn’t have too much room to increase distributions.

By: Financial Jungle Guy

Financial Jungle Guy — Thu, 24 Jan 2008 18:15:41 +0000

Unfortunately there isn’t a standardized NAV formula. According to REIT expert, Dennis Mitchell of Sentry Select, HR.un is trading at around 30% discount to NAV. Using the same formula, Riocan is trading at ~18% discount to his $24 to $25 NAV estimate.

Payout ratios must always be taken in context of the business. REITs have stable creditworthy tenants who sign on to long-term leases and pair them with long-term mortgages. I’d worry about payout ratio for energy trusts whose cashflow fluctuates with commodity prices.

BTW, I like Riocan too. If you’re happy with its 116% payout, you must be thrilled over HR’s 100% payout.

By: Nurseb911

Nurseb911 — Thu, 24 Jan 2008 23:39:35 +0000

Nice Snag JG,

As I just disclosed in a posting I recently picked up CWT.UN & CUF.UN for exposure to real estate for my portfolio. HR was on my watchlist when I started out, but decided instead for now that the NAV discount for these two protected my downside a little more than HR. Give us a heads up if you decide to add anything retail related.

By: Financial Jungle Guy

Financial Jungle Guy — Fri, 25 Jan 2008 00:08:59 +0000

Nurse - Interesting… Where do you lookup your NAV values for these 3 trusts? According to those Sentry Select guys, HR’s NAV is estimated to be around $25.

By: Financial Jungle Guy

Financial Jungle Guy — Sat, 26 Jan 2008 11:24:43 +0000

FourPillars - For some odds reasons, my spam filter keeps capturing your posts. Sorry for the delay.

I wonder if Canadians are at a disadvantage to invest in US REITs only because we probably cannot capture the Return of Capital. Just a wild guess. I haven’t done any work on them.

By: Nurse B

Nurse B — Sat, 26 Jan 2008 21:01:07 +0000

As a starting point I usually look up Sentry’s NAV estimate (Dennis Mitchell) and compre to the TDSI Morning Action Notes (TDW). TSDI ranks CWT.UN, but not CUF or HR.

I still do a NAV the old fashioned way (tedious) using this as a guide: http://www.nareit.com/portfoliomag/05mayjun/feat2.shtml (Mechanics of Nav)

But I have to admit that they’re normally not exact numbers when you figure in the assumptions you have to make for cap rate, so you have to do your best to get a rough estimate of the discount/premium.

By: dropby

dropby — Tue, 29 Jan 2008 01:14:58 +0000

Hi, FJ,

What do you think about HRP? HRPT Properties Trust. This US stock right now has a dividend rate of over 11%.

By: Financial Jungle Guy

Financial Jungle Guy — Tue, 29 Jan 2008 05:04:46 +0000

dropby - Unfortunately I’m not familiar with US REITs at all. Canadian REITs are keeping me busy enough, although I can imagine there must be a whack of cheap REITs down South too.

By: H&R REIT Looks Cheap | Financial Solution News

H&R REIT Looks Cheap | Financial Solution News — Thu, 31 Jan 2008 03:39:41 +0000

[…] post by Financial Jungle Guy Related Posts: A Diversified 4.69% Yielding […]

By: mg

mg — Thu, 31 Jan 2008 17:49:12 +0000

I had to send this to you.

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By: Financial Jungle Guy

Financial Jungle Guy — Thu, 31 Jan 2008 18:01:01 +0000

MG - The MLS page didn’t retain your search criteria. Can you outline the criteria here? Thanks.

By: mg

mg — Thu, 31 Jan 2008 18:03:38 +0000

Visit Quest for Four Pillars, latest post…

http://www.four-pillars.ca/2008/01/31/why-sub-prime-crisis-has-not-affected-canada-yet/