H&R Real Estate 2

I follow a number of REITs and this stock (TSX-HR.UN) is one that I follow. On Friday, I talked about this REIT having trouble in 2009 and decreased their distributions by 50%. As I also mentioned, they have started to increase their distributions again.

The Insider Trading report shows both a lot of Insider Buying and Insider Selling. Selling was at $6.3M and buying was at $3.4M, giving a net of $2.8M of selling. Most of the selling was by one director and most of the buying was by the CEO. Most of the buying by the CEO is very recent and after the selling by the director. You never know why people sell, but you know they must feel good about a company to buy, so the buying by the CEO is a positive. Both the CFO and other officers have move options than shares, however, the opposite is true of the CEO and directors. The recent dividend increases also show confidence in the future of the company.

When I look at the P/E ratio, I find that the 5 year median low is 11.2 and the 5 year median high is 28.5. I get a current P/E of 36.7 based on estimated earnings for 2010 and the forward P/E of 34. These P/E ratios are both quite high, on a relative and absolute basis. If you compare the price to the expected distributable income, I get a 5 year median ratio of 12.6 with a current ratio of 15.6. This current ratio, based on distributable income is not as relatively high as the P/E ratios. This would point to a more reasonable current stock price.

I get a Graham Price of $11.63 for 2010 and $12.06 for 2011. The current price is 70% higher than this year’s Graham Price and 67% higher than next year’s Graham Price. The reason for the low Graham Price is that there has virtually been no growth in the Book Value in the past 5 and 10 years. The Book Value is supposed to represent the break-up value of a company. The Book Value has gone up and down over the years, but it really has not grown. The Book Value is not exactly the same as the break-up value of a company, but I think that it is pointing out a problem.

When I look at the Price/Book Value Ratio, the current one of 1.78 is higher by 15% than the 10 year average of 1.43. This point to a current stock price that is high. The same thing is pointed out when looking at the yield. The median yield for this stock is 6.5%. The current one would be 4.5%. The current yield is way off the 10 year median high yield of 9% and it is even lower than the 10 year median low yield of 6.7%. So, this too would point to a rather high current stock price.

When I look at analysts' recommendations, I find lots of Strong Buy and Buy recommendations. There are also a few Hold recommendations. The consensus recommendation would be a Buy. (See my site for information on analyst ratings.) I find that the Analysts are pleased about the current high occupancy rate (about 98%) for this REIT. There seems to be an expectation that the stock price will be close or at $22 in 12 month’s time.

What seems to impress the analysts is “The Bow” building they will shortly complete in Calgary for EnCana. When this is done, it is expected that there will be a good increase in distributable income as this building is turned over the EnCana. This should start happening in July 2011 and be completed in 2012. It was also the building of “The Bow” that caused trouble for this company in 2009. They were spending money building this building when vacancy rates short up due to the recession. They had a liquidity problem, but this has now been resolved.

The CEO is buying this company at close the current price of $19.84. Analysts have stated some clear and valid reasons for buying this REIT.

H&R Real Estate Investment trust 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 across Canada and US. Its web site is here H&R. See my spreadsheet at 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 for stocks followed and investment notes. Follow me on twitter.