Monday, July 6, 2015

Canadian REIT Analysis

Throughout the last few months the REIT market has taken a beating. With all the talk of rising interest rates and the problems with natural resources such as oil many REIT’s are down quite a bit. I decided to look into the sector to better the decision making of buying a REIT. Some REITS are down nearly 20-30% from their highs, so I decided to take a look as to if these drops are warranted or just speculation.

The Drop in REIT’s has mostly been caused by interest rates. Does this make sense? Yes they are greatly affected by the interest rates but realistically the US may rise rates but their economy and Canada’s are actually declining. This is not the time to rise interest rates. And as of late in Canada there have been talks of another rate cut. If they cut rates it helps REIT’s so I don’t consider the drop in price at this point warranted rather it is a buying opportunity.

I decided to look at some of the major REIT’s and do a comparison of the price, distributions, AFFO, and payout ratio. AFFO and payout ratio are the most important metrics when it comes to a REIT as they let you know basically income per unit and the payout shows if the yield is sustainable over the long term.

I consider a high yield in some companies a danger sign or a trap to get you in before they slash it or reduce it greatly. REIT’s are different in this way but we still need to ensure the payout can be sustained. I consider over 90% payout ratio on a REIT unsustainable over the long term, I also consider around the 80-90% range where you would like the payout to be.

Yield is the other metric I look to, this is the actual %yield you will be paid based on the stock price. I don’t like stocks with less the 3% yield, but REIT’s are quite different as they don’t have the growth potential of most stocks rather they are more on an income fund. Therefore you want to invest in the REIT with a high yield but payout ratio below 90%.

Also right now as many of these REIT’s have been sold off there is an opportunity to get your high yield along with some growth as the REIT’s correct (at least in my opinion). Below I have highlighted some of the larger REIT’s and their metrics to help in my decision making.


For example REI is one of the largest REIT’s with a high quality client list including Walmart, Canadian Tire, Cineplex, Loblaws, Metro. It is held in almost every REIT ETF as the largest holding is down more the 13% from its high. Its payout is around 90% and its yield is 5.4%. This represents a good buying opportunity for this stock at a nice discount. Also it should be noted that REI’s payout was over well over 90% for the past two years but they management have worked diligently to get it into a more manageable level.


H&R is another good REIT with favorable metrics; down 11% for its high with a 6% yield and a payout of 88% this large REIT also represents a good option with American exposure. It holds 41 office properties, 164 retail properties, 107 industrial properties, 3 residential properties and 2 development projects.

Dream Office REIT

D.UN is yielding over 9%! That is a huge yield and down nearly 20% from its 52 week high. From a payout ratio standpoint its at 90% which is fine especially for such a high yield, but there is one thing that bothers me about this and it is the diversity. D.UN is an office REIT meaning it rents office to clients across Canada. If you feel the office sector is safe this is a great beat to make some money on a high yield but to me it seems to good to be true and I feel more comfortable with the diversity of companies like RioCan.

Artis REIT

I knew very little about this company when I started this post but have learned quite a bit. Its metrics are great, stock down 15%, yield over 7%, and payout ratio less than 85%. I consider these metrics perfect for a REIT with some room to grow that yield or add to the portfolio. AX.UN owns quality office retail and industrial property which gives some diversity. They own 25.2% retail, 23.1% Industrial and 51.7% office space. They also have properties in both Canada and the United states with 241 properties, a massive amount of leasable space and a 94.7% occupancy rate this REIT looks pretty attractive. They also have some high quality occupants such as Bell, Homedepot, Sobeys, #M, TD Trust, Shoppers, AMEC and both federal and provincial office buildings. I believe at the current levels and metrics this represents a great buy, my only concern is many holdings in Alberta but they are high quality and I believe it will not hurt the core business.


I believe the REIT sector right now represents a great buying opportunity and I do not think interest rates if they do rise will be by a very high percentage. Therefore, I believe this is a great opportunity to purchase some of these REIT’s at a discount and cash in on the long term yields. I intend to initiate a position shortly in a Canadian REIT but some more research is required before I do so.

Thursday, July 2, 2015

Networth and Cash Flow For June

Cash Flow
For the First time I decided to start tracking everything! From income to my expenditures to my investments to analyze where my money is going and where improvements can be made.

Pay (Engineering Job)
Additional Home and Insurance
Total Income $4819.67

Food/Eating Out
Truck & Car
Bills (cable/phone/heat and light)
Misc Expenses
Manulife RRSP
700 +250 Match
Total Expenses Including Investments $6775.67
Total Expense minus investments $3641.22
Total Investments this Month $3132.45 ( I had some Cash on Hand)
% Of Actual Monthly income invested 44.1% (I consider this good as I have a mortgage as well which in turn will be an investment)

The above Pie chart illustrates where the large portions of my money go, From this I notice that I spend a large amount of money of vehicles and my home. While I could probably downsize both my truck and home I feel my financial situation right now does not warrant this change and I do require somewhere to live and a form of transportation. My vehicles cost me around $1000 per month with fuel insurance and payments. And my home cost me About $1628 per month including heat, light, television, phone, insurance and my mortgage.
From this the areas I see I could make cuts are mainly food, misc and fitness. Fitness is usually no cost to me as I have a home gym and powerlift however, from time to time I need to buy something. I consider this a better investment than throwing money away on a gym membership and for the most part I buy quality gear which if needed I could re-sell.
Food is a waste and where I live it is very expensive to eat healthy right now I am eating for about $15/ Day. I would like to get this down closer to $10/Day and I would be happy.
Misc expenses seem to catch up with me and I will try and lower this cost going forward as well.
Net Worth
Equity In Truck
Equity In Car
Equity In Home

From the above my net worth is about $146,061.23. I am very pleased with this number I just turned 28 years old and I have only been working for 3 years thus far. I feel good with my progress and my hard work seems to be paying off.