H & R Real Estate Trust

First, I would like to point out that My Own Advisor Blogger is giving away a book called Millionaire Teacher for free. This is his 3rd blog on this subject. See his blog called My Favourite Takeaways – Millionaire Teacher and FREE book giveaway Part 3.

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Now, I want to talk about the stock of H&R Real Estate (TSX-HR.UN) today. I do not own this stock. This is another REIT or Real Estate company that I follow. 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. They were up just over 9% in 2010 and are up by just over 23% in 2011. So far, unit holders will get just over 8% more distribution in 2012.

Because of the decrease in distributions in 2009 there was no growth in distributions between 2000 and 2010. In fact, distributions over this period were down by 3.4% per year. Over the previous 5 they were down by 9.6% per year. However, looking at distributions between 2001 and 2011, they are not as bad as they down only by 1.8% per year. Over the past 5 years ending in 2011, they are down by 6% per year. Dividend still would have to increase by 37% to get back to their peak of 2008.

I know that it is hard to have distributions cut, but you do not want a REIT to provide distributions that they cannot afford. REITs provide good distribution yields and low growth. I you plan to live off of dividends and distributions from stock, you would want to invest in other sectors before investing in REITs. For more information on this subject, see my site for information on setting up a portfolio.

This REIT is also growing by issuing more units. The increase in units outstanding is at 10 year median of 9.7% per year. Because of this, things like Revenue are increasing faster than Revenue per Share. Revenue growth over the past 5 and 10 years is at 4.8% and 14.7% per year, respectively. Revenue per Share growth over the past 5 and 10 years is 0% and 2.8% per year, respectively.

With things like revenue, you want a company to be growing both Total Revenue and Revenue per Share. Revenue per Share can be growing faster than Total Revenue if a company is buying back shares. You want to look carefully at companies that cannot growth both Total Revenue and Revenue per Share over a long period of time, to find out the reason for it.

For this stock, Total Return has not been bad. Over the past 5 and 10 years, if you owned this stock, Total Return would be at the rate of 4% and 13.5% per year. Distributions would account for 5.6% and 8.5% per year, respectively. That is the capital return over the past 5 year is negative.

The growth in Cash Flow is marginal over the past 5 and 10 years at .4% and 3.9% per year. Book Value has not increased. Return on Equity was better for the financial year of 2010 at 10.7% that it has been for some time. The 5 year median was just 5.9%. The expected ROE for 2011 is quite low at just 2.1%.

The next thing to discuss is Debt Ratios. The Asset/Liabilities Ratio is borderline. What I like to see is a ratio of 1.50. The one for this stock is 1.49. This ratio is ok. The current Leverage and Debt/Equity Ratios are also ok at 3.19 and 2.13.

As with all REITs, this one can provide dividend investors some very good income. This REIT has a lower Payout Ratio as far as Distributable Income is concerned with a current one around 64% and a higher 5 year median of 87%. The Payout Ratio from Cash Flow has a 5 year median of 86.7%, which is somewhat high, but the one for 2010 was 47% and this year is expected to be 37%.

They had some problems with building Calgary's Bow tower. See an article on this at G&M. This article was first published in April 2009 and was last updated in November 2010. There is another article on this dated April 2009 at Canada East. Some analysts are still worried about this tower.

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.