October 28, 2020

Pure Industrial Real Estate Trust AAR

The Pure Industrial Real Estate Trust (AAR) is perfect for investors who are looking to get specific and focused Canadian industrial specific real state exposure.  While the REIT is still relatively small with a market cap of just over $105 million, it has been helped by the fact that management has refused to charge administrative fees or take any capital out of investments until the trust is over the $200 million bar.  The trust is currently still fairly concentrated within the Calgary market (not a bad place to be based out of), they are working to diversify their real estate portfolio, while targeting properties that only fit their industrial criteria and are very close to 100% occupancy.  PIRET’s (the acronym wordplay –pirate/PIRET – being responsible for unique “ARR” symbol) debt is roughly 60% of its capital, which is not bad for start-up real estate investment trust.

 

Perhaps the biggest positive factor that AAR has going for it is the fact that its management company (Sunstone Industrial Advisers Inc.) is heavily invested in the trust (in addition to the payment considerations mentioned above).  Mr. Garner, the companies CEO has bluntly stated that investors can be confident that management has their best interests in mind because, “Management is putting its own skin in the game.”  Anytime a prospective investor sees good insider behaviour like this, it can only be considered positive.  Mr. Garner goes onto to note that, “One great thing about industrial real estate is that it’s incredibly stable… For people who are nervous and have missed the market rally, it’s a nice way to enter the equity market.”  Of course Garner is obviously slightly biased as to PIRET’s future prospects, his points are accurate nonetheless.

 

The Pure Industrial Real Estate Trust (AAR) recently purchased a parcel of land lovated in Caledon, Ontario.  It totals over 12 acres, and is 100% leased to a company named Kingspan that specialises in large-scale construction.  It has been a busy year for the young REIT as they have also scooped up properties in Vancouver, Guelph, Surrey, Moncton, Edmonton, and Winnipeg amongst others.  PIRET is definitely making bold moves in the name of diversifying their asset base, and becoming a more stable entity as they grow.

 

There is a strong argument to be made for now being the best time to get in on the Pure Industrial Real Estate Investment Trust (AAR).  Canada’s industrial economy, while not exactly healthy, is very attractive compared to the rest of the developed world (save maybe Australia) and this is an excellent way to get exposure to that sector of the economy.  Mr. Garber is correct in pointing out that industrial real estate with long-term clients, is amongst the most stable of investments.  The trust currently has a unit price of about $3.72, and this could rise substantially in the next couple of years if the excellent management of capital continues.  The current all-important yield is 8.10%, which is good-if-not-great among PIRET’s competitors.

Top Canadian REITs

 

As we mentioned in our Canadian REITs introduction; there are enough Canadian REITs that you can now buy a ETF following this specific index. This is to give you an idea of how many REITs there are in Canada!

 

In order to make your life easier, we have pulled out what we call the Top Canadian REITs List. In order to build this list, we have taken several factors into consideration:

 

–          Minimum dividend yield of 3%

–          Positive 5 year annual revenue growth

–          Positive 5 year annual dividend growth

–          Positive 5 year annual income growth (except BRE)

 

Here’s the Top Canadian REITs list:

 

SymbolCompany NameDividend Yield5 Yr Annual Revenu Growth5 Yr Annual Income Growth5 Yr Annual Dividend Growth
BPOBrookfield Office Properties Inc.3.722.349.930.92
REI.UNRioCan REIT5.511.5431.891.35
FCRFirst Capital Realty Inc.4.69.5616.290.99
BEI.UNBoardwalk REIT3.611.23N/A41.46
REF.UNCanadian REIT44.7323.941.94
PMZ.UNPrimaris REIT5.911.26N/A1.74
CUF.UNCominar REIT6.518.090.853.89
AP.UNAllied Properties REIT5.523.2123.311.49
AX.UNArtis REIT7.849.27N/A8.91
NPR.UNNorthern Property REIT5.212.8930.492.79
MKPMCAN Mortgage Corporation7.86.999.268.61
BREBrookfield Real Estate Services Inc.8.44.16-3.096.25
BEK.BBecker Milk Company Ltd. (The)6.41.035.811.99

Canadian REITs

 

 

If you are a Canadian citizen there is probably no better income-producing investment option on the market today than Canadian Real Estate Investment Trusts.  They are more commonly referred to as Canadian REITs and have gained a lot of traction over the last decade or so.  There are now so many REIT options on the Toronto Stock Exchange (TSX), that you can actually buy indexes that will track the entire Canadian REIT market!

 

What are Canadian REITs?

But what is a REIT? And why are they such effective investment vehicles?  The short answer is that they are pools of money that are used to purchase revenue-producing real estate properties, and then transfer the earnings back to unit holders of the trust, but there are a few other specific reasons why Canadian REITs are so effective.

 

Canadian REITs – To Good To Be True?

Investment gurus, like most individuals, have commonly espoused the cliché, “If something looks too good to be true it usually is,” for years.  This logic was applied specifically to companies who offered very high dividend rates.  Most investors believed that if companies were paying out that much money to shareholders, then their long-term growth and competitiveness would be hampered by a lack of capital re-investment.

 

 

This thinking is what has driven people away from real estate investment trusts, as they offer outstanding annual dividend yields of 5-10%, and sometimes even higher.  If these companies were operating under traditional corporate structures, then the “too good to be true” argument would probably apply, but what many people don’t realize is that the reason these investment vehicles are able to consistently return so much money to unit holders (because there is no company to buy shares in, investors are called unit holders because they purchase units of the trust) is because they hold several advantages over the traditional corporation model.

 

Canadian REITs Tax Structure

The main advantage of Canadian REITs is the fact that they distribute profits before taxes, whereas all other corporations are forced to pay the business tax rate before distributing their profits.  This results in an automatic 20%-ish profit margin for REITs that are not available to other business models.

 

 

In fact the Canadian investment trust model was not limited to the real estate sector until January 1st, 2011.  Up until this point many different companies had switched over to an income trust structure in order to take advantage of the Canadian tax rules.  While the Canadian government decided to stop the bleeding of tax revenues, they ruled in favour of keeping the tax-advantaged structure for real estate in order to encourage growth in the all-important sector.

 

An Addition to your Canadian Dividend Stocks

Canadian Real Estate Investment Trusts offer a particularly great deal for Canadians who wish to generate income outside of their tax-advantage accounts.  Dividend income is only taxed at 25% of your marginal tax rate for most Canadians (there is a little more to the calculation than this, but this is the gist of it), as opposed to 50% of capital gains income, and 100% of interest income off of say bonds or GICs.  This advantage alone makes the investment vehicles very attractive.  When you factor in the consideration that real estate investments are not traditionally pegged to equities performance, and you have a very effective way of diversifying your portfolio without having to purchase a rental property, or try to raise capital to buy a commercial retail building.   American Real Estate Invest Funds do not have many of the tax advantages of their Canadian brethren, and with a depressed real estate market, their yields are often a third of their Canadian counterparts’.  While you may take some capital gains profits as a REIT rises in value, the true gains will be seen in your bank account every month as your solid dividends just keep adding up in an extremely tax efficient way. At the end of the year, whether you keep a professional tax guru using the latest software like QuickBooks Online for accountants or just pull up some free online software you’ll be happy to see these hints turn into numbers.

 

 

There is some risk in Canadian REITs (as there is in any investment).  Some speculators believe that the Canadian market is poised for the same downturn as the one that has recently shook the USA.  I personally don’t agree with this logic because of the much tighter and better regulated Canadian real estate market.  Canada has also maintained the healthiest economy of developed countries (save for possibly Australia) and consumer confidence has remained fairly high.  While I might stay away from trusts that are heavily dependant on volatile urban areas such as Vancouver and possibly Toronto, I believe the Canadian market as a whole will remain very healthy in the decades to come.  Our solid base in energy, commodities, and stable banks is a very strong indicator a future healthy real estate sector.  Because of this, I believe REITs represent a great investing opportunity for the next few years as world markets remain range-bound and investors search for elusive income-producing investments.

 

 

Here’s the list of Canadian REITs we have covered at Canadian Dividend Stock:

 

Top Canadian REITs

 

 

Pure Industrial Real Estate Trust (AAR)

 

Allied Properties Real Estate Investment Trust (AP)

 

Artis (AX)

 

Boardwalk Real Estate Investment Trust (BEI)

 

Canadian Apartment Properties Real Estate Invest Trust (CAPREIT)

 

Cominar Real Estate Investment Trust (CUF)

 

Crombie Real Estate Investment Trust (CRR)

 

Chartwell Seniors Housing Real Estate Investment Trust (CSH)

 

Calloway Real Estate Investment Trust (CWT)

 

Dundee Real Estate Investment Trust (D-U)

 

Homburg Canada (HCR) Real Estate Investment Trust (REIT)

 

H&R Real Estate Investment Trust (HR)

 

InnVest Real Estate Investment Trust (INN)

 

Northern Property Real Estate Investment Trust (NPR-U)

 

NorthWest Healthcare Properties Real Estate Investment Trust (NWH)

 

Primaris Retail Real Estate Investment Trust (PMZ)

 

Canadian Real Estate Investment Trust (REF)

 

RioCan Real Estate Investment Trust (REI)

 

The Retrocom Mid-Market Real Estate Investment Trust (RMM)

 

Scott’s Real Estate Investment Trust (SRQ)

 

Temple Real Estate Investment Trust (TR)

 

TransGlobe Apartment Real Investment Trust (TGA-U)

 

Whiterock Real Estate Investment Trust (WRK)

 

 

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