Monday, August 31, 2009

Canadian Real Estate Inv. 2

I am continuing my review this stock (TSX-REF.UN) today, as I have not reviewed it since I received the annual report for the end of December 2008. I bought this stock in September 2006 and since then I have made a return of 2.6% per year.

I looked at Insider Buying and Insider Selling for this stock. There are a couple of things I like to say about insiders. First, there has been lots of Insider Buying and almost no Insider Selling. Next, insiders own more shares than options. All the classes of insider have increased their holdings of this stock over the past year. The last thing to note is that dividends were increased for 2009. The dividend increase was just under 1%. However, this would be in line with current inflation. These are all great indicators of the confidence of insiders in this stock.

When I did ratios on this REIT, I have separated ratios based on Distributable Income (DI) from other ratios. These ratios can only be compared with other REIT stocks or income trust stock. You cannot compare, say the P/E of a stock to the P/DI of this one. You can only compare the P/DI of this stock to the P/DI of a REIT or income trust stock. I follow the RioCan stock (TSX-REI) and I see that the P/DI of this stock at 10.5 is lower than the P/DI of RioCan. RioCan’s P/DI is 12.7.

The P/E on this stock is at 18 and this close to the 5 year average on the low price. The 5 year average on the low price is 17.7. The current dividend yield is 5.6% is a bit lower than the 5 year average of 5.8%. When you look at the Price/Book Value, I find that the current P/BV is higher than the 10 year average. When I look at the Graham Price, it is 30% lower than the current price.

The problem with both the P/BV and Graham Price is that they include the Book Value. On income trust stocks and REITs, the Book Value tends not to increase because so much of the cash flow is paid out in dividends or distributions. None of these ratios, nor is the Graham Price point to a particularly good price. Except for the Graham price however, they point out that the current price is reasonable.

When I look at the analysts’ recommendations, I find that there are lots of Hold ratings on this stock, and some Strong Buys and a few Buys. The mean rating would be a Buy. (See my site for information on analyst ratings.) The reason the consensus recommendation is a Buy when there are lots of Hold ratings is because there some Strong Buys for this stock and there are no ratings lower than a Hold.

The reason this stock is liked is because of its stable and strong cash flow. Most of their real estate is industrial and they have long term and stable tenants. Also, they are paying out less of their distributable income, which is at 60%, than other REITs. For example, RioCan is currently paying out close to all their distributable income.

Currently, I am holding on to what shares I have in this company. I like REITs as the distributions are good. However, the increase in distributions tends to only keep up with inflation. This balances other shares I own that have low dividend yields, but increase their dividends at a much higher rate. However, I only have 3% of my portfolio in REITs and only 5% in real estate in total.

This is an equity real estate trust, which acquires and owns a portfolio of income-producing properties. It specializes in the acquisition and ownership of community shopping centers, industrial and office properties across Canada. This company owns office, industrial, retail properties and some miscellaneous items such as apartment buildings. Its web site is See my spreadsheet at

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at for a list of the stocks for which I have put up spreadsheets.

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