H & R Real Estate Trust 2

Sorry, but I had published my blog entry on FirstService Corp before I realized that I had not finished off this REIT stock.

I do not own this stock (TSX-HR.UN, OTC-HRUFF). I follow a number of REITs and this stock is one that I follow. H&R Real Estate was having trouble in 2009 and decreased their dividend by 50%. They have been increasing their dividends ever since and the current one is now $1.25 per share. The company was taken off the dividend lists I followed because of the dividend decrease in 2009.

When I look at insider trading, I find 1.3M of insider buying and $8.7M of insider selling for net insider selling of $7.4M of insider selling. This is a lot. There are a lot of insider options outstanding. For example, the CEO has options worth almost $28M, the CFO has options worth around $13M and a director has options worth around $22M. The CFO and other officers have more options than shares. The CEO has shares worth almost $79M, the CEO has shares worth $0.3M and a director has shares worth $29.7M. So insiders also have a lot of money tied up in this company.

According to Reuters, there are some 145 institutions that hold 45% of the outstanding shares. Over the past 3 months they have reduced their shares by 1.7%. This is not much and does not tell us much.

I cannot use the Price/Earnings Ratios test as this company had 2 negative earnings years in the past 5 years. The 5 year low, median and high median Price/Funds from Operations (FFO) Ratios are 10.99, 12.84 and 14.02. The current P/FFO Ratio is 15.19. This high ratio suggests that the current stock price is high.

The 5 year low, median and high median Price/ Adjusted Funds from Operations (AFFO) Ratios are 11.06, 13.26 and 15.46. The current P/FFO Ratio is 18.36. This high ratio suggests that the current stock price is high.

The Graham price based on earnings is also unusable, so I have a Graham Price using the FFO. Using the FFO, I get a Graham price of $22.33. The 10 year low, median and high median Price/Graham Price Ratios are 0.82, 0.92 and 1.04. The current P/GP Ratio is 1.10. This rather high ratio suggests that the stock price is high.

I get a 10 year Price/Book Value per Share ratio of 1.69. The current P/B Ratio is 1.80 is 6% higher and this higher ratios suggests a rather high stock price.

The 5 year median dividend yield is 6.1%. The current dividend yield is 5.08% a value some 15% lower. This lower yield suggests that the stock price is high.

All my stock price tests show the same thing. The stock price is relatively higher at this point. It is relatively higher than historical median high points. Generally speaking, if you pay more than the relatively historical median price, you will not do as well over the longer term than if you wait for better entry point. (However, the price is relatively speaking, just a bit higher than historical median high price.)

The analysts' recommendations are Strong Buy, Buy and Hold. The consensus recommendation would be a Buy. The 12 month stock price is $27.40. This implies a 12 months return of 16.46% with 5.08% from distributions and 11.38% from capital gains.

One analyst is looking at the Price/AFFO Ratio for 2014 and thinks that would be a P/AFFO of 15 and that this is a good ratio. My analysis says that this is a bit high. (There is also a problem that I see with FFO and AFFO calculations and that is the company and analysts do not always agree on what the FFO or AFFO is for a particular year.)

In an article in the earlier part of this year, Dennis Mitchell, Manager at Sentry Investments admits that that REITs are not cheap, but he says that they are more attractive than a US 10 year bond. See the article at the Financial Post. He also liked this REIT.

Investinvan blogger said he liked the occupancy rate for H&R REIT which is at 98%. See his blog entry. He is not the only one to mention this high occupancy rate as a plus for this company. Several analysts liked this company's exposure to both Canadian and American real estate. Another thought it good value.

The stock price may be a bit higher than the median high, but you cannot ignore a 5% distribution yield rate, which at the point is a very good yield.

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 or StockTwits.