H&R: A Lagging REIT That Shows Promise For 2020

Summary

• H&R REIT has been one of the worst performing REITs on TSX in 2019.
• The Alberta and energy correlation continues strong for this company.
• We give you our reasons as to why this is most likely to outperform in 2020.
• I do much more than just articles at High Dividend Opportunities: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Note: All amounts discussed are in Canadian dollars

While the US stock market had a rather dizzying 2019, the TSX lagged rather substantially. A key aspect in the lag was the underperformance of energy shares which heavily dominate the TSX.

Within our Canadian portfolio, we felt the drag from energy names as well. But one area where we had significant outperformers, was in the REIT space. Below we can see the top performers in Canada in the REIT sector. That change represents the price change only. Adding in dividends you can see that some Canadian REITs packed quite the punch for 2019.

Source: Reit Report

While we basked in the phenomenal performance of the winners, we were forced to prune most of our holdings (highlighted above) down to minimal levels as we are starting to see rather compelling values elsewhere. This has got our Canadian REIT holdings from over 45% at the beginning of the year to under 10%. When you combine those numbers with the percentage appreciation we have seen, you can tell we have been selling, and selling hard.

One area that we have added

While Canadian REITs have done well, we do have some rather notable laggards.

Source: Reit Report

H&R REIT (OTCPK:HRUFF) is one that has barely managed to stay flat. While it does sport a rather hefty yield, its underperformance does present an opportunity in our view.

The company

H&R is one of the largest Canadian REITs with a $7 billion market capitalization.

Source: H&R REIT

It is diversified across all areas of real estate with offices forming more than 40% of its asset value.

Source: H&R REIT

Geographically, the US portfolio makes up 40% of its asset base and it has a major presence in Ontario and Alberta.

Source: H&R REIT

The recent performance

Analyst’s Disclosure:I am/we are long HRUFF, NPRUF, ARESF, CVE, SU, CNQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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