December 10, 2018

Canadian Real Estate Investment Trust (REF)

The Canadian Real Estate Investment Trust (REF) or CREIT owns more than 160 properties across Canada.  Together, they total over 22 million square feet of retail space, split up among three main asset classes (retail, commercial, and residential).  CREIT’s core strategy is to acquire properties that are located near major urban centres.  This allows them to team up with ideal tenants, keep high occupancy rates, and enjoy a consistent stream of rental income.  One of the most unique parts about the Canadian Real Estate Investment Trust (REF) is that they are the oldest REIT in Canada (they began listing on the Toronto Stock Exchange in September 1993).  This long-term experience is something none of their competitors can match.

 

CREIT just announced the recent purchase of a large new portfolio of industrial properties in the Mississauga, Ontario area.  The package contains seventeen single-tenant buildings, and two-multi tenant buildings that are primarily used for warehousing and other industrial needs.  Together, the properties give CREIT (REF) over 700,000 square feet in additional space, on over 36 acres of land.  The new holdings are close to the Pearson International Airport, in a strong industrial zone.  The properties had been marketed as part of a larger bundle, but CREIT was able to arrange for a partner that offered to take the properties that did not fit with the trust’s overall strategy.  After all the financial negotiations took place, the 19 properties cost CREIT (REF) approximately $57.5 million.  “This is a natural addition to CREIT’s industrial portfolio in the Greater Toronto area.  These properties are well-located within the strong Mississauga industrial market.  The current occupancy is 99.6% and the acquisition cost is well below the current replacement cost.  This portfolio should deliver a reliable and growing rental income stream over a long-term investment horizon,” stated Adam Paul, the Vice President of Investments for CREIT (REF).

 

The recent news was not all good for the Canadian Real Estate Investment Trust.  Their balance sheet revealed a 30% loss of profits over the third quarter.  Earnings went from just over $30 million earlier in the year, to $21.5 million over the three months ending September 30.  The President and CEO of CREIT (REF), Stephen Johnson, sought to shore up investors’ fears by stating that he was, “Very satisfied,” with the company’s third quarter.  He went onto state that, “We have a strong balance sheet with significant liquidity and we continue to generate and retain meaningful cash flow from operations,” as well as, “We are actively looking to acquire, at appropriate pricing, high-quality real estate assets to add to our portfolio.”

 

While the Canadian Real Estate Investment Trust does offer a substantial track record, I have a tough time recommending a REIT that is currently paying out unit-holders at a dividend rate of 4.10% when many of its competitors are over double this figure.  The most recent news of a substantial earnings drop also leaves me with several real questions.