H&R Real Estate

I follow a number of REITs and this stock (TSX-HR.UN) is one that I follow. I have not yet blogged on this stock. One thing to note is that they decreased their dividend in 2009 and so this stock was taken off the dividend lists that I follow.

The growth statistics on this stock have not been good recently. I you had held this stock for the last 10 years, you would have made money because of the distributions. Until recently, the distributions were very good, being in the 7% to 8% range. The increase in earnings and distributable cash has not been good, especially over the last 5 years. The increase in cash flow is mediocre and the increase in book value is almost non-existing.

The problem with this REIT’s book value, as with lots of income trusts, is that a portion of the distributions is return of capital. The percentage of the distributions over the last 6 years going to return of capital has been from 40% to 65%. While, at least I can say that the book value has not been decreasing. The Return on Equity (ROE) has not been great either. On a REIT, you would want a ROE of at least 8% and the ROE has not been this high since 2004.

When a business gets into trouble, you want them to do the sensible thing. If you invest, the times you really lose are when the business goes belly-up. This company has cut is dividend because it did not have the cash flow to pay it. They had problems with financing the The Bow development in Calgary. The company has also recently issued bonds to raise money for this construction. The company is acting sensibly.

Another negative thing to mention is that the Asset/Liability Ratio is a little low at only 1.46 currently. I like to see this at 1.50. Also, the Accrual Ratio is not particularly low at 2.3%. It would be nice if this ratio were negative. On a more positive note, there are some recent favorable Analysts reports on this stock lately. I will talk about this tomorrow.

H&R REAL ESTATE INVESTMENT TRUST (H&R REIT) is an open-ended real estate investment trust. They have a portfolio of office properties, single-tenant industrial properties, retail properties and development projects. They operate principally in the Greater Toronto Area. Its web site is www.hr-reit.com. See my spreadsheet at www.spbrunner.com/stocks/hr.htm.

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 www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets. Also, look at other investing notes on my website at www.spbrunner.com/investing.html.