Smart REIT

Sound bite for Twitter and StockTwits is: Dividend growth REIT. Liq Ratio low. I do not like companies where the Liquidity Ratio is so low. It presents problems of vulnerability in bad times and bad times always roll around. This company's Liquidity Ratio is very low. See my spreadsheet on Smart REIT.

I do not own this stock of Smart REIT (TSX-SRU.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 stock recently changed its name from Calloway Real Estate Income Trust (TSX-CWT.UN) to Smart REIT (SRU.UN). The OTC symbol seems to still be CWYUF. Not all sites have updated to the new name and symbol. From most you can get the new name of Smart REIT but some are still using the old symbol of CTW.UN. Do not forget that some US sites do not use the UN extension, but usually use something like SRU_U.

Because this is an REIT, dividend yields are quite good, but dividend increases are low. Generally REIT should have dividend increase at or just above inflation. Dividends were flat on this stock from 2008 to 2014. In 2014 dividends were increased by 3.4%. The dividend growth on this stock was 0.1% and 2.5% per year over the past 5 and 10 years.

The problem is that the company had Dividend Payout Ratios that were too high. I am not just talking about DPR compared to EPS and CFPS, but also compared to FFO and AFFO. For FFO and AFFO DPR were over 100% in 2010. All the DPRs for 2014 were moderated. DPR for EPS was 80.4%, for CFPS was 88.2%, for FFO was 79.6% and for AFFO was $83.8%. All these ratios are expected to be fine in 2015 also.

Shareholders have done well lately with total returns over the past 5 and 10 years at 10.65% and 8.04% per year. The portion of this total return attributable to dividends or distributions is 6.15% and 5.98%, respectively. The portion of this total return attributable to capital gains is 4.50% and 2.07%, respectively.

Taxes on distributions lately have been under Other Income, Capital Gains and Return of Capital. In 2014 Other Income was 61.7% of the distribution, Capital Gains was 3% of the distribution and Return of Capital was 35.3% of the distribution.

The outstanding shares have been increasing so we should be more interested in per share values. The outstanding shares have increased due to Stock Options, DRIP and Convertible Debentures. Revenue growth is non-existent to good. AFFO and FFO growth is low to moderate. EPS growth is good. Cash Flow growth is low to good.

Revenue growth is 5.7% and 21.3% per year over the past 5 and 10 years. Revenue per Share is down by 0.8% and up by 5.4% per year over the past 5 and 10 years. Analysts expect good growth in revenue for this company this year and next year.

FFO has grown by 3.2% and 3.9% per year over the past 5 and 10 years. However FFO has tended to fluctuate and if you look at 5 year running averages, the growth is lower. The growth in FFO using 5 year running averages over the past 5 years, growth is just 1.4% per year. AFFO has grown at 3.4% and 3.7% per year over the past 5 and 10 years. AFFO has also fluctuated and the 5 year growth using 5 year running average is just 1.4% per year. Analysts expect low to moderate growth here in 2015.

EPS growth is much better than FFO and AFFO growth. EPS has grown at 51.8% and 14.4% per year over the past 5 and 10 years. EPS has also fluctuated, but using 5 year running averages growth is similar at 40.9% and 13.9% per year over the past 5 and 10 years. Analysts expect moderate growth here in 2015. If you look at the 12 month period to the end of the second quarter to the 12 month period to the end of 2014, EPS has grown by 5%.

Cash Flow is up by 8.5% and 20.9% per year over the past 5 and 10 years. CFPS is up by 1.9% and 5.1% per year over the past 5 and 10 years. If you look at the 12 month period to the end of the second quarter to the 12 month period to the end of 2014, Cash Flow has grown by 6.7%.

The Liquidity Ratio is very low. It is currently at just 0.27. Generally with REITs if you add back in current portion of the long term debt and cash flow after dividends, you get a ratio over 1.00. A ratio of 1.00 is current assets equal current liabilities. For this company the ratio is 0.75. Having such a low ratio leaves a company vulnerable in bad times.

The other debt ratios are fine. The Debt Ratio at 2.22 is quite good. The Leverage and Debt/Equity Ratios are also quite good at 1.82 and 0.82.

The Return on Equity is also quite low with the ROE for 2014 at 6.9% and the 5 year median at 8.2%. Net Income and Comprehensive Income is the same.

This is the first of two parts. The second part will be posted on Wednesday, September 23, 2015 and will be available here. The first part talks about the stock and the second part talks about the stock price.

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

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