Recent Buy: H&R REIT (HR.UN)

Image courtesy of H&R REIT.

Image courtesy of H&R REIT.

It’s been a while since I’ve written about my recent buys. The reason being, I haven’t purchased any positions recently, other than purchasing shares of TELUS in June. However with the RRSP deadline approaching, and some tax payable,  I was able scrape nearly 1K to contribute to my RRSP. That gave me enough cash in my RRSP to top-up or purchase something new. In early September 2013, I had mentioned in a weekly lineup I was thinking about REITs.

Yesterday morning I made a small purchase of 53 shares, in H&R REIT (HR.UN).  I am pleased with initiating a position in H&R, and look forward to adding more shares to this company.

Why REITs?

For those who don’t know what REITs are, they are Real Estate Investment Trusts. Under the trust structure, REITs don’t pay corporate income tax. They pass the full taxable amount of distributions onto unit holders. That results in a much higher yield. Bingo!  Since the distributions from Canadian REITs can be sheltered in a TFSA or RRSP, they make a great income investment.

It’s no surprise that investors are again interested in REITs. Many of these companies came off their highs sharply in 2013. Even considering a potential rise of interest rates, the larger REITs currently  appear to be a good value play. They also offer a generous yield. Ben Carlson wrote a post in September 2013, and asked are REITs a Buy? 

A Quick Comparison

In his post, Ben looked primarily at the largest REITs, RioCan (REI.UN) and H&R REIT (HR.UN).  He also looked briefly at iShares XRE, the ETF which holds Canadian REITs. As Ben pointed out, the two largest holdings for XRE, RioCan and H&R REIT, make up nearly 35% of the entire ETF.

RioCan has a current yield of 5.36%, which is considered low for Canadian REITs. H&R has a 6.29% yield, and XRE has a yield of 5.38%. XRE actually has a total yield closer to 6%. However a high annual MER (Management Expense Ratio) of 0.6% pulls the yield down.

I would be fine buying either REIT or XRE.  Simply put H&R REIT offered the higher yield without an ongoing MER.  Also I much prefer to own companies directly, even with a small stake.

H&R REIT

H&R REIT is a 5.8 billion dollar company1, with 323 properties comprising a 13 billion dollar assessed value.2 Their portfolio consists of 42 office properties, 167 retail properties, 112 industrial properties,  and 2 development projects.2 H&R REIT spins off 1.8 billion in annual revenue. It currently has a net profit margin of 35.3%, a debt to capital ratio of 50.3%, and a payout ratio of 52.3%.1 The current distribution (dividend) yield is 6.27%.

For those living in Vancouver, they will recognize one of H&R’s iconic properties, the TELUS building at Kingsway and Boundary. They also own the Bow Center in Calgary, the Scotia Plaza in Toronto, The Bell Canada Complex in Mississauga, and the Trans Canada tower in Calgary, among others. 2

In addition they rent retail space to may well-known companies. The list includes: Wal-Mart, Staples, Rona, Sysco Food Services, Walgreens, Shell, Home Depot, and Finning among others. All of their tenants are large-cap and established companies, giving H&R REIT a solid foundation.3

Moving forward, as funds are available, I would like to significantly increase the REIT holdings in my portfolio. I’d like to buy more shares of H&R REIT (HR.UN), RioCan (REI.UN), and a position in Dundee REIT (D.UN) as well.

Readers, do you own RioCan, H&R REIT, or other REITs in your portfolio? Are you currently buying REITs?

Notes

1. From TD Waterhouse Market Research (online brokerage).
2. From the H&R REIT website, home page:  www.hr-reit.com.
3. From the H&R REIT website, properties list (CSV file).

22 Responses to “Recent Buy: H&R REIT (HR.UN)”

  1. Jack @ SeeJackSave

    Feb 27. 2014

    I love REITs. I own H&R, Artis and ZRE (the BMO ETF). I got in early before they exploded over the past few years. I’m very pleased with their performance!

    Reply to this comment
    • Dividend Ninja

      Feb 27. 2014

      Hey Jack, that’s great!

      I had forgotten about ZRE. I like the fact it is equal-weighted. But it also has more exposure to smaller REITs (since the smaller holdings are equal weighted). The smaller REITs are also more apartment and office oriented. This could make ZRE a little more sensitive to a rise in interest rates.

      Have you topped up any of your REIT holdings with the pullback last Spring?

      Cheers

      Reply to this comment
  2. John

    Feb 27. 2014

    I also was looking into investing into REITs. Did some analysis with ETF’s XRE and ZRE and found one is cap weighted and the other is equal weighted. I prefer to be equal weighted but did not like the ROC % on ZRE. My goal is to achieve a higher income stream from dividend payout. I decided also to buy only Stocks. I diversified my risk with Sectors within the REITs.
    That can average out a higher % Yield than the ETF’s, stripping out MER and ROC.
    The Sectors I went into are Residential, Shopping Malls, and Diversified. My Total Holdings are 6 Stocks. I took 10% of my Portfolio and split the dollar amount into 1/3 per Sector as mentioned above.

    Thanks.

    Reply to this comment
  3. gmf

    Feb 27. 2014

    I’ve looked at expanding my REIT holdings. I have a relatively large position in Dundee, that came about via one of their acquisitions. I topped up the position during the decline, though could have waited a little longer. Will likely add another REIT in the next while. Thanks for the article.

    Reply to this comment
    • Dividend Ninja

      Feb 27. 2014

      gmf sounds good!

      If you have a large holding in only one REIT, have you thought of selling some and diversifying into a couple of other REITs? Say HR and REI…

      Cheers

      Reply to this comment
  4. Cassie

    Feb 27. 2014

    This post was really well timed for me. I’ve been thinking about adding REITs to my portfolio for a little while now, and this morning I finally pulled the trigger. I added ZRE and CGR.

    Reply to this comment
    • Dividend Ninja

      Feb 27. 2014

      Hi Cassie!

      CGR is definitely not for me, the yield is far too low for the added risk IMO. But ZRE is a good choice!

      Cheers
      DN

      Reply to this comment
  5. Dividenden-Sammler

    Feb 27. 2014

    Yesterday I have receive the first dividend from HCP.
    HCP was my first REIT.
    The next (this year) will be O.

    HCP for the medical business and O for the industry business.
    If I own HCP and O, I don´t know which benefits H & R can bring me…

    Diversification?
    I think H&R is in the same business like O.
    But If H&R is better than O….?
    I don´t know, which company is better…

    Best regards
    D-S

    Reply to this comment
    • Dividend Ninja

      Feb 27. 2014

      D-S,

      Not sure what O is, but HCP is only healthcare properties. Though it looks interesting…

      H&R REIT is commercial office, industrial, and commercial retail. Investing in HR and REI would give you more exposure to different areas in the REIT sector. However these are Canadian companies, so foreign investment restrictions apply.

      Cheers
      DN

      Reply to this comment
  6. Lawrence of Surrey

    Feb 27. 2014

    Ninja:
    I have been in the REIT sector since I started trading for myself in 2010.
    Sold some names before the downturn last year. Still own H&R, PIRET, and Chartwell Retirement
    Residences. Turning out great distributions. Fortunately I own them all at lower prices than today. In my portfolio they are core holdings I hope to hold for a long time.

    I enjoy following and reading your blog

    Reply to this comment
    • Dividend Ninja

      Feb 27. 2014

      Lawrence,

      Thanx for following the Ninja! Love hearing from long-time readers… Never going to sell H&R, hold forever and add more. :)

      Cheers

      Reply to this comment
  7. My Own Advisor

    Feb 28. 2014

    Great call!

    I own and DRIP HR.UN, RioCan (REI.UN), and D.UN. Never intend to sell them, let the DRIPs run so money that makes money makes more money.

    REITs are built-in inflation fighters :)

    Mark

    Reply to this comment
  8. Dividend Ninja

    Feb 28. 2014

    Thanx Mark!

    I know you have already been investing in DRIPs REITs for a long time now, and I feel a little late to this party. :)

    Your right, these are inflation fighters!

    Cheers

    Reply to this comment
  9. RICARDO

    Feb 28. 2014

    Hi Ninja;
    Just got heavy in to the REITs in January, with D, DI, DIR and LW
    After their fall from grace (they got tappered) last year they became irresistable.
    Up between 5 – 10% and paying quite nicely.
    I do not drip as I prefer to diversify my holdings with the dividends rather than scrouging for new money every year. Nothing against dripping but I jsut wanted to have the cash available for the potential bargains that pop up every now and then.

    Reply to this comment
  10. NoWayMe

    Mar 01. 2014

    Hi Ninja, last time I posted was about this very topic back in October last year. Awesome to see it come back and good news on the HR buy! They just released great results, as did REI not that long ago. Since then I have also increased my REITs. The fear of interest rate hikes (which in my opinion is off the table for a long time) sent these guys down and left a great time to pick them up. My current positions are:

    REI.UN (400 shares) @ 24.96
    HR.UN (400 shares) @ 21.66
    D.UN (150 shares) @ 28.68
    DI.UN (500 shares) @ 8.85
    NPR.UN (150 shares) @ 29.29

    Currently that is 175 in monthly distribution. I plan on adding to DI.UN and NPR.UN in the short term as well as long term to all. PS: I do not DRIP either. I prefer to chose and have nice round numbers (yes I’m particular)

    Take care

    Reply to this comment
    • Dividend Ninja

      Mar 01. 2014

      NoWayMe,

      Completely agree! The sell-off was overblown, but not surprising. REITs had been going up in a straight line for a while.

      Nice work on the REIT holdings, I have a long way to go to catch up to you! :)

      Thanx for dropping by,

      Cheers
      DN

      Reply to this comment
  11. Peter

    May 17. 2014

    What are your thoughts on Dundee REIT (D.UN) and Cominar REIT (CUF.UN)? They seem to be a bit more volatile then their peers; great yield, even though they have bounced back a bit here. Thoughts?

    Thanks,
    Peter

    Reply to this comment

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