This Canadian REIT has responded to a changing real estate market with a series of strategic moves that appear to be paying off.
It welcomes the first tenants in a major residential project in New York after selling off its U.S. retail and other less important properties. This gives the company a superior balance of industrial, office, retail and residential properties to boost cash flow and sustain its distribution, which yields a high 6.8%.
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H&R REAL ESTATE INVESTMENT TRUST (Toronto symbol HR.UN;www.hr-reit.com) owns 37 office properties, 152 retail properties, 91 industrial properties and 17 residential properties. 56% of its Canada properties are in Ontario and Alberta and 34% are in the United States. Among its landmark buildings in Canada are the Bow Tower in Calgary, the Atrium in Toronto and Place Bell in Ottawa.
In all, these holdings include 45 million square feet of leasable space. The REIT’s overall occupancy rate is a high 94.1 %.
In November 2017, H&R announced it would sell all 79 of its U.S. retail properties as part of a new strategy. The REIT has agreements with buyers for 63 of those properties, which makes for total proceeds of $633 million U.S. That leaves just 16 gas stations/convenience stores for H&R to sell.
The trust intends to pay down $205.9 million of its mortgage debt with the net proceeds. It also expects overall cash flow to improve as a result of the property sales.
Dividend Stocks: Full occupancy for major New York project due by end of 2019
Meantime, H&R REIT continues to make progress on the development of its 50%-owned 1,871-unit Jackson Park residential project in Long Island City, New York. It’s a joint-venture partnership with U.S. real estate firm Tishman Speyer.
As of April 30, 2018, the property had 864 units certified as ready for occupancy and 353 signed leases. H&R, and its partner Tishman Speyer, expects to have 100% of the apartments leased by the end of 2019. When fully occupied, the building should add $23.0 million U.S. to the REIT’s annual cash flow.
H&R REIT’s revenue increased 1.6% in the three months ended March 31, 2018, to $298.6 million from $293.9 million a year earlier. Cash flow per unit was flat at $0.39.
H&R last raised its monthly distribution by 2.2% in December 2016. The $1.38 annual rate yields a high 6.9%; that payout is roughly 78% of cash flow.
The REIT’s units trade at 11.6 times the forecast 2018 cash flow of $1.75 a unit. They yield a high 6.8%.
Recommendation in TSI Dividend Advisor: H&R REIT is a buy.
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