Canada is awesome. It’s like the US, but without Trump. And without Hilary Clinton, now that I think of it.
In any event, the very low Canadian Dollar gives you American an excellent opportunity to grab some underpriced Canadian Real Estate Assets. And if you are Canadian like me, well, you should be buying Canadian Real Estate anyway. Because they’re awesome.
Everyone knows about the REF.UN, HR.UN and BEI.UN. And up to a point, they are all excellent. But today, I’ll talk about little-know REITs that I am plain and simply in love with.
DIDN’T MAKE THE CUT:
C) Slate Office REIT – TSE:SOT.UN
GREAT office reit with terrific yield (8.60%!). Used to be FAM Reit, had a couple of transition, and now has a super-stable portfolio and a safe distribution. This is one of my main holding in my portfolio. However, it is kind of pricy at $8.72 and not as good as my three main picks. This should tell you how amazing my three main picks are.
B) True North REIT – TSE:TNT.UN
Super small, but outstanding distribution at 9.60%. And they just posted amazing results. However, a bit small and some risky-ish tenants prevents this one from reaching the three main spots.
With that in mind, the distribution is amazing, the recent earnings are amazing and this is definitely a “gem in the rough” kind of REIT. A little bit small, but things are looking up, at least according to their latest earnings report that was excellent.
A) Inovalis REIT – TSE:INO.UN
I love this company beyond all measures. Mostly France, but some Germany. Amazing yield at 8.52% and amazing success. Super low payout ratio, room for increase, great growth ahead – it’s really a shame this one isn’t in my top picks, but you get an idea of how strong my top picks are.
THE TOP THREE
3) Slate Retail – SRT.UN
I call this one the “sleeper REIT.” No one really talks about it, no one really shows any love for it, yet it pays a 7.11% distribution. That’s been increased twice in the last 12 months. And they have a 95% occupancy ratio. And they have shown great skill at buying new properties. For some reason, nobody talks much about it, but it’s a super-strong REIT whose distribution should keep growing and growing. After its latest earnings (released today!), their AFFO payout rate (basically the best measure of a REIT’s distribution sustainability and possible growth) stands at 67.9%. They should increase their distribution by 50% and still be able to cover it. Oh and their metrics are awesome, with a 13% increase in FFO per share in the last three quarters. Wow!
I don’t think SRT.UN will stop growing anytime soon. I think we are looking at a 5-10% distribution growth every year for the next 5 years at least. That 7.11% distribution will be 9+%, and it will keep growing from there. Why take a 8.5% today from a company with “meh” growth opportunity when you can grab 7.11% with “Yes, I’ll get a raise every year” opportunities?
There’s so little that is bad about this company that I literally looked at my computer screen for fifteen minutes and couldn’t find anything. Their strategy consists of attracting a large tenant (e.g. Wal-mart) and then renting the building around them (for instance, to a gym, a restaurant, etc.). The presence of Wal-Mart adds value to properties that would otherwise be just okay-ish and this translates to higher rents.
This company has true skill when it comes to buying high-quality, well-located shopping centers. And again, their payout ratio is among the lowest in the ENTIRE REIT SECTOR.
Look: you cannot not buy this company. It’s that good.
2) Automotive Property REIT – TSE:APR.UN
What could beat the “sleeper REIT”? Well, the God REIT of course.
APR.UN is so good I’m not even going to try to explain why it’s so good. It’s just that good. Watch my video on it:
1) BTB REIT- BTB.UN
What beats the “GOD Reit”? Nothing. BTB.UN gets its place at the top just because it’s just about the safest 9% distribution I can think of. Look at a five year graph:
You might be disappointed that the price is basically at the same level it was 5 years ago. Don’t be: you would have received 45% of tax-optimized distributions since then. And you’d still hold your shares, obviously.
Not enough for you? Then it’s time to reconsider investing. For the past five years, BTB has sent me a check every month – the check even increased in 2014.
With that in mind, what shocks me in the graph above is that BTB.UN is in a much better position than it was 5 years ago. Sure, its number of shares increased significantly since then, but its financial position is much safer than it was 5 years ago. For instance, their debt ratio is now the lowest it’s been since 2009 at 66%. Of course, their leasing metrics have also improved, and the payout ratio plummetted from 105% a few years ago to 85% today. This would leave room for another increase pretty soon.
I believe BTB.UN’s metrics will keep improving for the quarters to follow. Keep in mind this is a REIT that started from scratch – it didn’t start as a spinoff of a massive company or something like that. These guys are excellent at making acquisitions. Being mostly in Quebec, they are immune to oil problems as well. Quebec has a pretty stable economy.
The distribution is safe, but what really makes this my top pick is that it could be my “grand slam.” At only $193M market value, it has a lot of room for growth in 10-15 years. There is no reason BTB.UN cannot be the next Cominar or even H&R Reit. Let me explain in clearer terms why BTB.UN is my top, top pick:
- With SRT.UN, you’ll get 7% per year growing at 5% per year (which is amazing)
- With APR.UN, you’ll get an ultra-safe 8% that will grow at 2-5% per year (which is amazing too)
- But with BTB.UN, you’ll get a 9% distribution AND the company stock price could soar.
Keep in mind BTB.UN started from NOTHING. Look at this line from their IPO prospectus in 2006:
Wow, $11M in asset! So huge!
You have an idea of how far these guys came from. In 10 years, they grew their assets base by 6,040%:
Total assets today: $665
$665M in assets today. While still paying a distribution of 9-10% per year. And increasing it from $0.28 in 2006 to $0.35 today:
sedar.com
Honestly, I don’t know what else you guys could ask for.
This is my TOP small cap REIT in canada. This one could easily double your money just from the stock price and you’re getting 9% per year to wait. Honestly, I’m not sure what else you could ask for.
That’s perfection if such a thing ever exists.
I watched the “Automotive Property REIT” video. I was hoping you’d discuss the company’s funding in more detail. Specifically, the mismatch between their funding maturity (about 5-7 years) and their lease maturity (around 15 years). Also the 1.5% rental rate increase barely matches inflation in the short-medium term, and might not match inflation in the longer term.
Also I was wondering if you can talk about a little bit about the biggest customer and the controlling shareholder – Dilawri group. What is their history/reputation about treating minority shareholders fairly? Not saying it’s negative, but would have appreciated a little bit more color on it.
You raise excellent points, to say the least, all of them worth an article. I’ll go on and write an article on it.
Hi,
I am uploading a video on the topic right now.
On page 52 of this annual report – https://docs.google.com/viewer?url=http%3A%2F%2Fwww.btbreit.com%2Fwp-content%2Fuploads%2F2011%2F08%2FQ4-2015_EN_BR.pdf
why does Average lease rate/square foot keep going down for future?
Also, I was not able to find the average lease duration…on what page is that?
Interesting point. Give me some time.
Greetings,
After checking the page you linked, I am pleased to say that those are the rents for expiring rents. Those rate/square foot were fixed a long time ago and that explains why they are lower. We can reasonably expect those rents to be renewed at a higher $/sqf.
In other words, those are the prices of leases about to expire, i.e. in Office 2017, we have a lease expiring at a price of $13.04/sqf. That lease should be renewed at a much higher price.