Monday, September 8, 2014

Calloway Real Estate Investment Trust

On my other blog I am today writing about a possible different way of viewing dividends continue...

I do not own this stock of Calloway Real Estate Investment Trust (TSX-CWT.UN, OTC-CWYUF). Once you have 5 or 6 stocks, you might want to consider a REIT for diversification. REITs are an easy way to investment in real estate. I am therefore following a few REIT stocks and in 2009 I decided to look at a few on the Dividend Achiever's List. Unfortunately, this stock is no longer on the Dividend Achiever's List.

This company started to pay dividends in 2002, but only for two months. The company increased their dividends until 2008 and then increases stopped. So dividends were flat for 5 years. At the end of this year, this company has again started to raise dividends and dividends or distributions were increased by 3.1%.

Between 2008 and 2012, this company was paying out too high a percentage of their earnings and especially more critical for a REIT, too high a percentage of their cash flow. For 2013, the Dividend Payout Ratios are a lot better with the DPR for EPS at 66.5% and the DPR for CFPS at 91.4%. Lots of analysts also look at DPR for FFO and AFFO. The DPR for FFO for 2013 was at 83.4% and for AFFO was at 88%.

Of course, this REIT was not the only one with problems with distributions between 2008 and 2013. RioCan Real Estate (TSX-REI.UN, OTC-RIOCF) had a few years of no increases, Canadian Real Estate Trust (TSX-REF.UN, OTC-CRXIF) had some very low increases and H&R Real Estate (TSX-HR.UN, OTC-HRUFF) decreased their dividends in 2009.

When looking at dividends over the longer term, dividends are up by 3% per year over the past 10 years. However, they are up by 0% over the past 5 years. But with the 10 year increase, the dividends are up by the rate of background inflation and this is not bad for a REIT. REITs tend to have good dividend yields and this REIT has a current yield of 6% and the 5 year median dividend yield is 6.96%.

Shareholders have not done badly over the past 5 and 10 years. The total return over these periods is at 13.51% and 10.60% per year with 6.41% and 3.57% per year from capital gains and 7.10% and7.03% per year from dividends.

The number of outstanding trust units or shares has increased a lot over the past 5 and 10 years. The shares have increased by 7.1% and 28.1% per year over the past 5 and 10 years. Increasing shares are not a problem in themselves, but it does mean that investors should be very interested in per share values. That is the growth in Revenue per Share is important for the shareholder rather than growth in Revenue per se.

Revenue, earnings and cash flow have grown nicely. It is interesting that there is for this company comparatively little growth in Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO). These are measures that a lot of analysts are interested in for REITs.

Revenues have grown by 5.6% and 46% per year over the past 5 and 10 years. The Revenue per Share has grown at a negative 1.4% and positive 14.1% per year over the past 5 and 10 years. (However, if you look at the 5 and 10 year running averages, Revenue per Share has grown at 4.3% and 9.5% per year over the past 5 and 10 years.)

EPS has grown at 19.62% and 6.08% per year over the past 5 and 10 years. However, a lot of this growth is due to the change in Accounting Rules from Canadian GAAP to IFRS rules. FFO has only grown by 0.5% and 4.2% per year over the past 5 and 10 years. AFFO has only grown at 0.7% and 3.51% per year over the past 5 and 10 years.

Cash Flow has grown at 6.8% and 39.8% per year over the past 5 and 10 years. CFPS has declined by 0.3% per year over the past 5 years and has increased by 9.2% per year over the past 10 years. If you look at 5 year running averages over these periods, the CFPS is better at 3.3% and 14.7% per year over the past 5 and 10 years.

The Return on Equity is not great, with the ROE for 2013 at 8.5%. However, the ROE on comprehensive income is the same. The ROE has been lower than 8%, 3 of the past 5 years.

The Liquidity Ratio is rather low at just 0.27. If it is not at 1.00, it means that current assets cannot cover current liabilities. However, if you take off the current portion of the long term debt and add in cash flow after dividends this ratio comes in at 1.03. The Debt Ratio is very good at 2.16. The Leverage and Debt/Equity Ratios are good also at 1.86 and 0.86.

Sound bit for Twitter and StockTwits is: Dividend Growth REIT with recent modest div increase. After a number of years of no dividend increases, it is nice that this REIT can now afford one. I still have reservations about the ownership structure of this REIT with the Limited Partnership and Special Voting units. My complaint is that it is complicated. See my spreadsheet at cwt.htm.

This is the first of two parts. The second part will be posted on Tuesday, September 9, 2014 and will be available here. The first part talks about the stock and the second part talks about the stock price.

Calloway REIT is the largest owner of large-format unenclosed retail properties in Canada. Its web site is here Calloway REIT.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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