Friday, December 9, 2011

H & R Real Estate Trust 2

I do not own this stock (TSX-HR.UN). This company has also had problems with distributions recently. They cut their distributions by 50% in 2009. However, they have been raising the distributions recently.

When I look at Insider Trading, I find $5M of insider selling and $2.8M of insider buying. Insider selling is split between CFO, Officers and Directors. Insider Buying is mostly by Directors, but also some by the CEO. The CEO own shares worth around $71M. One Director has shares worth $28M. The CEO and officers have more stock options than shares. The opposite is true of CEO and Directors.

Some 44% of this stock is owned by 101 institutions. They have both bought and sold this stock over the past 3 months. Over this period they have increased their shares by just over 3%.

I will use the current Price/Adjusted Funds from Operations Ratio to look at a stock price ratio. This is because the Earnings per Share are expected to be very low in 2011 and the EPS has bounced around a lot lately. The current Price/AFFO is 15.33. The 5 year median high and low P/AFFO Ratios are 16.99 and 12.12, respectively. This would place the current P/AFFO Ratio above a median 5 year P/AFFO Ratio and just below the 5 year high P/AFFO Ratio.

The Graham Price is affect by the current estimate EPS and therefore is quite low. If we use last year’s Graham Price of $17.16, the current stock price of $23.15 is some 35% higher. The high 10 year median difference between the Graham Price and Stock Price is the Stock Price being 28% higher. So by this measure, the stock price is high.

The 10 year median Price/Book Value Ratio is 1.57. The current P/B Ratio is 1.71 and 9% higher than the median P/B Ratio. This would also suggest a relatively high current stock price.

The current dividend yield is 4.5% and the 5 year median dividend yield is 6%. This also shows a relatively high stock price. It is only in 2009 and 2010 that the dividend yield approached anywhere close to such a low one. The lowest point in dividend yield in 2009 was 4.5% and in 2010 was 3.8%. This certainly points to a relatively high stock price.

When I look at analysts’ recommendations I find Strong Buy, Buy and Hold. The consensus recommendation would be a Buy. I found a Buy recommendation with a 12 month stock price of $27. As I mentioned yesterday, some analysts are clearly worried about the Bow building in Calgary. However, a lot of analysts are not.

A number expect that distribution increases will continue. The price seems relatively high, but it was higher in 2006 and 2007. Another Buy recommendation came with a 12 months stock price of $24.60. That would also be a good return with a 6% gain in stock price and a 4.5% dividend yield, you are looking at around 10% return.

One of the features of REITs is the generally high Payout Ratios. High Payout Ratios are not bad per se. However, you want to have some assurance they are sustainable if you want to invest in a company with high Payout Ratios. The other thing is growth. If you have high Payout Ratios it is probably impossible to fund growth internally. The other options are debt and issuing new shares. You can only take on so much debt. As far as I can see, both this company and Calloway have been funding growth with new shares.

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.


  1. I'm pretty bullish on these guys. I own it in my TFSA.

    Will be posting my favourite REITs tonight.

  2. Thanks for letting me know about your posting. I have linked to it in my blog on all the REs I follow.