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H&R REIT Has A Well-Covered 6.9% Yield And Price Upside, Even If Retail Goes To Zero

Published Thu, 15 Oct 2020 17:06:56 -0400 on Seeking Alpha

Seeking AlphaREITs | CanadaH&R REIT Has A Well-Covered 6.9% Yield And Price Upside, Even If Retail Goes To ZeroOct. 15, 2020 5:06 PM ET|| About: H&R Real Estate Investment Trust (HRUFF)by: Canadian Income InvestorCanadian Income Investor Foreign companies, Long Only, debt, bondsSummaryDistribution is covered even if the enclosed mall portfolio never generates any earnings ever again, and could grow if it does.
Development projects are adding high quality U.S. residential which deserves a higher multiple.
Office properties have long leases and credit worthy tenants - they will outlast the pandemic affects.
H&R REIT (OTCPK: HRUFF)(Toronto:HR.UN) is a diversified REIT based in Canada. There are a number of diversified REITs in Canada, but they have fallen somewhat out of favour as the market has moved to more specialized names with more niche exposure. This has been especially true recently as H&R has retail exposure, which has hurt the market's perception of the firm. That said, the retail is a small percentage of the value of the firm, and some of the other segments (Calgary office, for example) have more value than the market is currently ascribing to them. Finally, they did cut the dividend in the wake of COVID-19, which disillusioned investors. However, the new distribution rate is sustainable and provides an attractive return on the current price. They also have significant development projects nearing completion that will allow them to grow funds from operations (FFO) in the near term. Because the firm reports and pays dividends in Canadian dollars, and is more liquid on the Toronto Stock Exchange, all the figures in this write-up are in CAD unless otherwise noted.
The company has four segments, with office space being the largest one by fair value, as you can see from the figure below.

Source: H&R REIT Investor Presentation
There has been quite a bit of ink spilled about the implications of work from home on office... Read more