H & R Real Estate Trust

I do not own this stock of H & R Real Estate Trust (TSX-HR.UN, OTC- HRUFF). Before I started blogging, I was following a number of REITs and this is one I had followed. It also used to be on a dividend list I followed.

This stock has been a dividend growth stock. However, in 2009 they reduced the dividends in half. The cash flow retained from the reduced distribution was used to finance construction of The Bow, an H&R's development project in Calgary. Since then the dividends have grown at 17% per year, but they are still some 6% lower than the dividend high that occurred in 2008.

This company also did not raise the dividends for 2014. Analysts expect dividends to go up at a minimal amount in both 2015 and 2016. This is basically at the rate of inflation. The dividends are down by 1.3% per year and up by 1% per year over the past 5 and 10 years.

Shareholders have done fine to date, but the 5 year total return is much better than the 10 years total return. The 5 and 10 year total returns are at 12.64% and 7.02% per year, with the distribution portion of this total return at 6.31% and 6.01% per year and the capital gains portion of this total return at 6.33% and 1.01% per year.

The outstanding shares have grown a lot over the years. The 5 and 10 year growth in shares is at 14% and 12% per year. Shares have increased due to Debenture Conversion, DRIP, Share Issues and Stock Options. While there has been good growth in Revenues but there is mediocre to no growth in per share values. For cash flow, there has been moderate to good growth in per share values as well as good growth in Cash Flow. If I was a shareholder of this company, it is the per share values I would be most interested in.

Revenues have grown at 13% per year over the past 5 and 10 years. However, Revenue per Share is down by 0.5% and up by 0.8% per year over these periods. Cash Flow has grown at 25% and 21% per year over the past 5 and 10 years. The Cash Flow per Share has grown at 9.8% and 7.8% per year over the past 5 and 10 years. The stock price hit a low in 2008 with the announcement of the dividend cut. The stock has since recovered.

Since EPS seems to be greatly affected by the change in account to IFRS, it is hard to know what growth in EPS is telling us. However, there are problems in the growth in FFO and AFFO per share values. The FFO per share has grown at 2.7% and 2.3% per year over the past 5 and 10 years. Analysts seem to be transitioning over the AFFO values. The AFFO per share values have declined by 1.5% over the past 5. I can only find AFFO values on this stock going back to 2008

We have several Returns on Equity Ratios that we can do. The ROE on net income is just 5.2% and this has a 5 year median of 5.7%. If you want to base it on FFO or AFFO the ROE becomes 7.5% and 6.1%. None of these are very good. However, based on FFO or AFFO, the ROE is above 10% in 3 of the last 5 years.

The debt ratios are fine. The Liquidity Ratio is quite low at 0.49. When this ratio is below 1.00, it means that the current assets cannot cover the current liabilities. If you add in cash flow after distributions, this ratio is 2.00. The Debt Ratio is good at 1.86 and the Leverage and Debt/Equity Ratios are a little high, but ok at 2.17 and 1.17.

Sound bit for Twitter and StockTwits is: Dividend Growth REIT. I know shareholders have done well with this stock. However, I would like to see better growth in Revenue per Share and AFFO per Share. I know that analysts expect good growth in both these values in 2014. The last quarter did see growth in both of these values, but they do not seem to be growing quite at the rate expected.

A portfolio should have some REITs or Real Estate stock for diversification purposes. REITs do provide good yields for a portfolio. See my spreadsheet at hr.htm.

This is the first of two parts. The second part will be posted on Monday, December 12, 2014 and will be available here. The first part talks about the stock and the second part talks about the stock price.

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 HR 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.