Canadian Real Estate Investment Trust

On my other blog I am today writing about Canadian REITs continue...

I own this stock of Canadian Real Estate Investment Trust (TSX-REF.UN, OTC-CRXIF). I started to follow some REITs because I wanted to diversify my portfolio into REITs. I was mainly interested in that have commercial properties. In September 2006, I wanted to buy another REIT after having to sell Summit. I already have lots of RioCan.

As with most REITs this one has a good dividend yield and moderate increases. The current Dividend Yield is 3.86% and the 5 year Dividend yield is at 3.79%. The distributions have increased by 4.9% and 3.3% per year over the past 5 and 10 years. The most recent increase was 6% in 2014.

This REIT has better distribution increases than I expect from a REIT. Because the dividend yields are good, I would expect increases at the rate of inflation or slightly better. According to the Bank of Canada, inflation in Canada is running at 1.45% over the past 10 years, 1.13% over the past 5 years and 0.85% over the past 3 years for total inflation. Also it is running at 1.56% over the past 10 years, 1.34% over the past 5 years and 1.24% over the past 3 years for core inflation.

I bought this stock 2006, almost 9 years ago and I have done well. I have made a total return of 11.60% per year with 7.04% from capital gains and 4.56% from dividends. If you look at 5 and 10 year total return on this stock they are at 12.06% and 11.97% per year. The dividend portion of this return is at 4.42% and 4.84% per year and the capital gain portion is 7.64% and 7.13% per year over these periods.

If you look at dividends I have received, they equal $19.57 per share. I paid $26.38 per share for this stock in 2006. So the dividends I have received so far are 74% of my purchase price. Another way at looking how well I am doing is that I am making a dividend yield of 6.63% on my original purchase. These are reasons to buy dividend growth stocks.

One thing to look at for dividend paying stock is the Dividend Payout Ratio. For most stocks I check the DPR for ESP and CFPS. For this stock these ratios were 87.5% and 73% for 2014. The 5 year median of these ratios is 124.5% and 65.9% for EPS and CFPS.

For REITs it is not that simple. You need also to check the DPR for Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO). For this stock the applicable DPR for 2014 for FFO is 58.5% and for AFFO is 69.3%. The corresponding 5 year median ratios are 58.6% for FFO and 68.3% for FFO.

Of course none of this is an exact science. This is because EPS does not always give you a good handle on the REITs ability to pay distributions. Also, for REITs the EPS was affected by the 2011 change to the IFRS accounting rules. The FFO used to be called Distributable Income (or some variation) and the rules for calculating it have changed over time. The AFFO is the latest version of FFO.

The outstanding shares have increased by 1.8% and 2.6% per year over the past 5 and 10 years. This makes per share values a better indicator of this company’s growth. Growth over the past 5 years is less than the growth over the past 10 years. Growth over the past 5 years has been low, but EPS and CFPS values are volatile so the 5 year running growth rates might be better indicators of growth for these measures.

Revenue per Share has grown at 1.5% and 3.1% per year over the past 5 and 10 years. Revenue is better with growth at 3.3% and 5.8% per year over the past 5 and 10 years.

If you look at EPS the growth is 1.8% and 8.7% per year over the past 5 and 10 years. EPS has been volatile, especially over the past 5 years. Using the 5 year running averages, growth is at 6.3% and 3.5% per year over the past 5 and 10 years.

Growth in FFO and AFFO is moderate. The FFO growth is at 5.1% and 7.6% per year over the past 5 and 10 years. AFFO growth is at 4.7% and 6.3% per year over the past 5 and 10 years.'

Growth in Cash flow is 1.65 and 4.8% per year over the past 5 and 10 years. However, it is better using the 5 year running averages which has growth at 4.8% and 6.7% per year over the past 5 and 10 years. The Cash Flows have been volatile.

For this company, the Debt Ratio and Leverage and Debt/Equity Ratios are currently good. Debt Ratio for 2014 is 2.58 and the 5 year median is 1.87. The Leverage and Debt/Equity Ratios are low for 2014 at 1.63 and 0.63. The corresponding 5 year median ratios are higher and a bit high at 2.59 and 1.59. However, the median values are not unusual for REITs.

The total distribution increases in 2013 and 2014 were at 7.9% and 9.3% respectively. These are quite high, but there is no indication that this is causing any problems. Analysts expect, using the current $1.75 yearly distribution for the DPR for EPS to be around 55%, for FFO to be around 57.7% and for AFFO to be around 62.9% this year.

Sound bite for Twitter and StockTwits is: Core REIT holding. This REIT has done well in the past and there is no reason to expect anything less than a solid performance in the future. However, it does have exposure to the Canadian west and there are current problems with oil prices. See my spreadsheet at ref.htm.

This is the first of two parts. The second part will be posted on Tuesday, March 10, 2015 and will be available here. The first part talks about the stock and the second part talks about the stock price.

Canadian Real Estate Investment Trust is an equity real estate trust, which acquires and owns a portfolio of income-producing properties. It specializes in the acquisition and ownership of community shopping centers, industrial and office properties across Canada. This company owns office, industrial, retail properties and some miscellaneous items such as apartment buildings. Its web site is here CDN Real Estate.

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.