H&R Real Estate Inv Trust (HR.UN.TO)

Likes the outlook for real estate, and away from the frothy areas. Well diversified with only 20% in Western Canada. They have a growing business in the US. Doesn’t think REITs generally will be hurt by modestly rising interest rates. Dividend yield of 6.83%.

This has a terrific strategy if you are looking for stability in your portfolio. They tend to buy or build a building for a single tenant, lease it for 20 years, put a 20 year mortgage on it and live off the spread. It doesn’t matter if interest rates go up or down or if rents go up or down, they have locked in the profit. Study growth over time. The balance sheet is underlevered as a result of a sale of some US assets, giving them room to add debt. Payout ratio is only about 35%, meaning they can raise their distribution significantly. Dividend yield of 6.41%.

He has been buying, having been underweight. They went through some transitions recently. It came down to the point where it hit his buy price. It is inexpensive and diversified – office, retail, industrial, and apartments. It is all very high quality.

This is more of a defensive name that you could put in your portfolio. Gives you great mid-single digit yield with a relatively low payout ratio. Has a long weighted average lease term matched by a long weighted average debt term, so is very bond-like in nature. Valuation is compelling. His only concern is that he is not sure how the stock is going to get re-rated because it is so well diversified.

People feel that a rising interest rate environment is not going to help REITs. The issue is really matching their liabilities with their rents. There is a two-year spread between the average length of the mortgage and the debt, and all you need to care about is the spread. Well-balanced with retail, commercial and industrial. Dividend yield of 6.36%.

They own a lot of real estate geographically. Office, retail and now they are into apartments in the US. It is harder for them to put forth growth projects that move the needle. You have a stable earnings base. High quality real estate. 10% discount to NAV. Be patient before stepping in, but it would not be her favourite.

He models an 89% payout ratio, making the dividend pretty sustainable. One of the highest quality REIT portfolios in Canada. You can get it now at 14X price to AFFO, a couple of points cheaper than its five-year average. Building out their retail platform and their US platform. The US is 25% of their business. The problem is that they have sold half of their industrial portfolio, which was somewhat dilutive for them. Because of this, he sees pretty flat growth across the board over the next couple of years. This one is viewed as a bond proxy with its long duration contracts. You only want to buy this if you believe there is an elongated cycle and interest rates are not going up anytime soon. He prefers other REITs.

Getting too diverse for his liking. Good managers and they own a ton of assets. However, they own the US, they own residential, they own office and they own industrial. You have to deal with currency issues. He wants a pure play.

These guys are all going to be facing the same headwinds. He likes the return of capital as well as dividends. If we see rising interest rates they will be facing these headwinds. He is comfortable with the dividends and payments. It is a stable business with a high lease rate. A quarter to a half percent increase in rates will not do that much harm because their distribution is so high.

This gives a pretty attractive yield of over 5%. It is two thirds to maybe three quarters commercial, and just about one quarter retail. They have a very high quality tenant base. There is very little vacancy risk in terms of occupancy. This represents an attractive investment for someone who wants some income and share price appreciation.

From a long-term income basis, he is very supportive of this REIT. A great diversified strategy that is going to be very stable for a long time. In the short term, they have been doing some transactions that have made him scratch his head a little. In the short term, it could continue to underperform slightly. However, it is a very large company and attracts a lot of capital. He is underweight this.

(Top Pick Mar 10/14, Up 10.44%) A very high quality REIT. Build a building, lease it for 20 years, mortgage it for 20 years and lock everything in. It does not matter what happens to interest rates. It is a very sound, conservative pick. They had a stumble in Calgary in 2008 but they got through that and the building is fully leased.

He may short REITs in the future. They are interest rate sensitive. Once you see interest rates go up you will see these drop significantly. You will see a 10-15% downside in REITs in response to a 1% increase in interest rates.

One of the largest REITs in Canada. Have now diversified into retail, office and industrial. Their portfolio is about $14 billion, and $10 billion of that is in long leased assets. Very, very safe. Yield is very safe.

The main reason for the large amount of trading volume recently is because this is the 2^nd largest REIT. There are fund flows coming from other countries into REITs. Earnings were very solid. Have moved into garden style apartments in Texas, a completely new sector for them. He thinks that would have been better left to the experts.