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

Largely a commercial and industrial manager of real estate assets, and for years and years a wonderful simple strategy. They would build a commercial building, mortgage it, lease it for 20 years and lock in a spread. It was predictable and it was great. They then branched out, and in 2008 had a near-death experience when they built the Bow office tower in Calgary. They almost ran out of money because they hadn’t locked up their financing. This is a low growth company. Distribution is growing, very slowly. It’s the kind of company that will suffer if interest rates grow. The 6% distribution is not a dividend and is taxed as other income, but is absolutely safe. This is only a yield play.

(A Top Pick Oct 21/16. Up 1%.) He chose this because of its cheap valuation and its long-term Alberta leases. The balance sheet has gotten slightly worse, but is still pretty good. Payout ratio is still pretty good at 81%. Trading at 12.7X 2017 versus its five-year average of 13.5X and its peers at around 13X.

A well diversified REIT with good assets. His problem with REITs is that they get a valuation because of their payout, which is a little excessive, relative to the rest of the market. Trading at 12 to 15 times enterprise value to operating cash flow. There is no real organic growth in most of them. They are popular with investors because they pay out up to 90% of their Operating Cash flow as a yield.

He has an 81% payout ratio on 2017/2018, which is pretty safe for a REIT. This is one you can buy now. Trades at a 13% discount to his NAV and has a decent growth rate of about 3%, versus 2.8% of its diversified peers. Its balance sheet isn’t bad with a 42% Debt to Fair Value.

A well-managed REIT. There are a number of headwinds with interest rates going up, potential debt maturities coming due. They have some office space in Calgary which is a bit under pressure, but not catastrophic. Good income. A “wait and see” situation.

(Top Pick Jul 12/16, Down 2.51%) The cheapest valuation, trading below NAV. He hangs on to it and this is a great entry point. He thinks you are good for a year on REITs but not for 5 years. Keep an eye on the rate outlook.

A good entry point. It has pulled back quite a bit, and for no fundamental reason. Generally, rising interest rates are not that favourable for REITs, but she is not anticipating a sharply rising interest rate environment. They are in commercial as well as some residential in the US. A well-run company. Dividend yield of 6.5%.

He likes it although it is not his favourite. He holds it in all of his REIT funds. Money has been reallocated due to the surprise increase in the interest rate by the BOC. Money has been exiting this sector and this is the second biggest REIT in Canada. If you are long term hold, then it is a safe long term hold.

Not a big fan of the REIT space right now. There are a lot of headwinds facing it. You have higher interest rates, so margins are going to get compressed. There is also the Amazon (AMZN-Q) issue with retail storefronts closing down with everybody moving to e-commerce. He would rather look for something with a steadier growth behind it. Prefers the healthcare side of REITs.

A good company. A diversified REIT with some office properties and retail properties. They’ve increased their US exposure and now have a lot of apartments there. You are getting a very well diversified company that has a very good management team and a strong balance sheet. The weighted average lease term is 5.5 years, so there is some good visibility in terms of debt renewals. It trades at a discount to NAV.

Trading around 13.5X in 2017, versus the universe at around 16X. This is quality and has a decent growth rate of around 3.5%. It has a pretty good balance sheet. 85% payout ratio. At these levels you could write a Put, oblige yourself to own it at $21 and get paid $1. You probably won’t get Put in, but if you did, you would be owning an asset at a really good level that is paying a 6%+ sustainable dividend. A good name to be picking up.

One of their issues is their big exposure to office buildings in Calgary. Believes the distribution is probably safe, but he is not running out to buy the stock.

She likes the name. Commercial, industrial and blue chip client base with high occupancy and long leases. They have a bit of retail. They pulled back a bit, but it could be because of a building in Calgary with EnCana as the primary tenant, which has a long term lease. She is more cautious on more retail REITs, with Target going. Although they are able to lease out at higher rates than Target had. They have a stable cash flow stream.

A good, well operated REIT. We’ve had a transformation from very cyclical. Anything that was highly levered or high tax rate, tended to do very well in the aftermath of the election. Financials did quite well. Now with uncertainty around the Trump administration’s policies, you are seeing that swing back into defensive names. This is not a bad place to hang out for a few months at least. We might have 2 or even 3 interest rate hikes, but even that would not be substantive enough to move the needle, other than very short term.

It is a diversified office, residential and industrial REIT. It is geographically diversified. They have been selling down Alberta assets. Alberta is not going to go anywhere for the next year or two. There are a lot of moving parts. He has trouble understanding individual parts. He does not think it is going to go anywhere anytime soon.