Analyzing Canadian REITs, Part X: Highest Yields And Lowest Risks

|
Includes: BAM
by: Monty Spivak

<< Return to Part IX

This is the last article of the series, and will provide a summary of the highest yielding and lowest risk Canadian real estate securities. The great news for non-Canadian investors is that most of qualifying Canadian securities are traded on U.S. exchanges.

Now that we are equipped with our comprehensive list from the 9 previous articles, in the following table I have identified the top 10 investment candidates with the highest yield:

Name

CDN Ticker

US Ticker

Article #

Sector

Payout Ratio %

Yield

Market Cap $k

Scotts REIT

SRQ.UN

SOREF.PK

5

Retail

195

17.40%

$34,072

Temple REIT

TR.UN

TRLSF.PK

6

Hospitality

19916

10.00%

$87,670

Extendicare REIT

EXE.UN

EXETF.PK

7

Retirement/Nursing Homes/Healthcare

441

9.90%

$711,106

Wall Financial

WFC

N/A

2

Diversified

147

9.80%

$372,856

Medical Facilities Corp.

DR

MFCSF.PK

7

Retirement/Nursing Homes/Healthcare

N/A

9.40%

$333,348

BTB REIT

BTB.UN

BTBIF.PK

3

Industrial

59

9.10%

$65,111

InnVest REIT

INN.UN

IVRVF.PK

6

Hospitality

20

9.10%

$411,567

Partners Real Estate Investment Trust

PAR.UN

PTSRF.PK

5

Retail

137

8.80%

$56,175

Brookfield Real Estate Services Inc

BRE

BREUF.PK

9

RE Broker

129

8.70%

$119,971

Retrocom Mid Market REIT

RMM.UN

RTRCF.PK

5

Retail

60

8.60%

$184,975

For the reasons behind these higher yields, I will refer you back to the earlier articles, which describe the company profiles and financial results. Please note that the "Article #" column is the article in this series with the details on the respective security; for example, if you would like more information on Scott's REIT, then refer to Part V of this series.

For those who are risk averse, I have identified the lowest risk top-10 in two tables. There are two aspects of risk that we should consider: risk of insolvency and sustainability of yield.

1. The risk of insolvency or financial failure is one aspect of risk. I propose that the larger market capitalization securities enjoy more of a cushion, so will use market cap as a proxy, and rank the securities by market capitalization. This is extremely rudimentary; your decision should also be based on interest coverage, debt ratios (such as debt to equity), and other metrics.

Name

CDN Ticker

US Ticker

Article #

Sector

Payout Ratio %

Yield

Market Cap $k

Brookfield Office Properties

BPO

BPO

3

Office

13

3.50%

$8,226,168

Riocan REIT

REI.UN

RIOCF.PK

5

Retail

44

5.30%

$6,974,606

H&R REIT

HR.UN

HRUFF.PK

2

Diversified

142

4.70%

$3,662,712

First Capital Realty

FCR

FCRGF.PK

5

Retail

44

4.60%

$2,970,171

Calloway REIT

CWT.UN

CWYUF.PK

5

Retail

91

5.80%

$2,757,085

Boardwalk REIT

BEI.UN

BOWFF.PK

4

Residential

9

3.50%

$2,684,842

Canadian REIT

REF.UN

CRXIF.PK

2

Diversified

20

4.00%

$2,451,728

Dundee REIT

D.UN

DRETF.PK

2

Diversified

36

6.70%

$2,140,046

Canadian Apartment Properties REIT

CAR.UN

CDPYF.PK

4

Residential

14

4.80%

$1,730,514

Primaris REIT

PMZ.UN

PMZFF.PK

5

Retail

21

5.90%

$1,710,798

2. The risk that the yield may not be sustainable is the 2nd aspect of risk that I propose to explore. I have ranked the securities by payout ratio. The lower the ratio, the lower the portion of earnings that are paid-out as yield. Therefore, when times are tough, the yield will be sustainable for low payout ratio companies and trusts:

Name

CDN Ticker

US Ticker

Article #

Sector

Payout Ratio %

Yield

Market Cap $k

Morguard Corporation

MRC

MRCBF.PK

2

Diversified

5

0.80%

$969,260

GT Canada Medical Properties REIT

MOB.UN

N/A

7

Retirement/Nursing Homes/Healthcare

8

5.20%

$17,384

Boardwalk REIT

BEI.UN

BOWFF.PK

4

Residential

9

3.50%

$2,684,842

Criterion REIT (formerly: Split REIT Opportunity Trust)

SOT.UN

N/A

8

Fund

9

3.00%

$11,796

Brookfield Office Properties

BPO

BPO

3

Office

13

3.50%

$8,226,168

Canadian Apartment Properties REIT

CAR.UN

CDPYF.PK

4

Residential

14

4.80%

$1,730,514

Canadian REIT

REF.UN

CRXIF.PK

2

Diversified

20

4.00%

$2,451,728

InnVest REIT

INN.UN

IVRVF.PK

6

Hospitality

20

9.10%

$411,567

First Asset REIT Income Fund

RIT.UN

N/A

8

Fund

20

5.30%

$87,822

Primaris REIT

PMZ.UN

PMZFF.PK

5

Retail

21

5.90%

$1,710,798

As you may have noticed, I have not included Brookfield Asset Management (NYSE:BAM) in these tables, despite the "honorable mention" in Part VIII. This is because its real estate subsidiaries are well represented, and because this conglomerate is as much an infrastructure play as a real estate play. That said, my belief is that BAM would occupy the position of the lowest risk (based on $150B assets; $37B market cap; and 13% payout ratio), but the 1.65% yield will not be attractive to yield-oriented investors. You could also see that Brookfield Office Properties, one of the main BAM related companies, qualifies for both of the low-risk tables.

I have introduced a table of all of the Canadian real estate securities (common shares and REIT units, but not debt of preferred shares) in my Instablog, Analyzing Canadian REITs, Part XI - Alphabetic Listing Of All Canadian Real Estate Companies.

Before we wrap up this series with some analysis, I would like to identify two new Canadian real estate information sources, courtesy of one of our colleagues - Philipsonh. He found Investcom and at the Toronto Stock Exchange. Please note that these are listings of REITs, so do not include all of the real estate companies (as it excludes corporations and limited partnerships).

This concludes the series on Canadian real estate investment alternatives. My hope is that this has helped non-Canadian investors gain an understanding of the Canadian real estate securities, and that this assists with your investment decisions. I would also like to take this opportunity to thank my readers for their helpful, supportive, and informative, comments and emails.

Disclosure: I am long OTCPK:EXETF, OTCPK:RIOCF, OTCPK:HRUFF, OTC:DRETF, OTC:CDPYF.