Here are three real estate investment trusts that we recommend for buying at recent prices.
Canadian Real Estate Investment Trust or CREIT (TSX-REF.UN), delivered strong financial results in its first quarter, with funds from operations, or FFO, rising seven per cent year-over-year.
CREIT owns and manages a diversified real estate portfolio of retail, industrial and office properties (including a limited number of development properties) throughout Canada.
The portfolio’s 197 properties, including development properties, contain 31.9 million square feet of gross leasable area, with CREIT’s ownership interest at 23.9 million square feet.
For the three months ended March 31, 2014, CREIT’s funds from operations, or FFO, were $50.2 million, or $0.73 a unit, compared with $46.7 million, or $0.68 a unit, in the same period of 2013.
The decrease was primarily attributed to property transactions, a declining cost of debt, improvements in same-asset performance and higher interest income.
In February, CREIT increased its distribution to $1.75 a unit from $1.65. On a quarterly basis, the distribution is 58.8 percent of the first quarter’s FFO, giving the trust plenty of flexibility to raise the distribution in the future.
CREIT’s existing real estate portfolio should let it continue to deliver stable and rising distributions. And a strong balance sheet positions it to pursue income growth opportunities. Its goal is to consistently average year-over-year FFO growth of two to three per cent.
The units are a buy below $46.00.
H&R (TSX-HR.UN) has agreed to sell a 50-per-cent non-managing interest in three enclosed shopping centres within its Primaris portfolio.
The REIT acquired Primaris REIT last year for $3.1 billion. The purpose of the purchase was to gain exposure to high-quality shopping malls across Canada.
With the purchase, H&R became not only an owner, but a third-party manager of regional shopping centres.
By acting as manager, the REIT should be able to increase the growth rate in the funds from operations earned from these malls.
And the divestment of the 50-per cent stake in the three shopping malls further leverages the benefits that stem from this management role.
For one thing, H&R reduces its equity investment but still generates management fees. Second, the REIT reduces risk through its reduced stake. And third, it’s able to redeploy about $113.0 million in net proceeds from the sale to other opportunities.
The REIT reported solid first-quarter results. For the three months ended March 31, 2014, H&R’s FFO were $135.2 million, or $0.47 a unit, compared with $90.0 million, or $0.45 a unit, in the same period of 2013.
The economic outlook for commercial real estate in North America is positive, particularly in the U.S., where H&R has a sizable investment.
H&R is a buy.
Despite a competitive acquisition environment in its industry, RioCan REIT (TSX-REI.UN, $27.16) has purchased its partner Trinity’s interest in three high-quality developments in various stages of completion.
For a total consideration of $105 million, the REIT has acquired Trinity’s 10-per-cent interest in Calgary’s East Hills new format retail centre; a 25-per cent interest in McCall Landing, also in Calgary; and a 25-per cent interest in The Stockyards in Toronto.
The acquisition of these interests further increases RioCan’s portfolio concentration in Canada’s six major markets, a long-stated objective.
And in the case of The Stockyards, the REIT has increased its interest in a Target-anchored shopping centre in a densely populated community.
For the three months ended March 31, 2014, RioCan’s operating FFO were $127 million, or $0.42 a unit, compared with $124 million, or $0.41 a unit, in the same period of 2013.
The increase was primarily due to a rise in operating income caused by acquisitions, same-store growth of 3.1 per cent for Canada and 3.0 per cent for the U.S., favourable foreign currency exchange, straight-line rent of $2.4 million and lower interest expense.
The units are a buy below $28.00.
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