When the government introduced its income trust tax, most real estate investment trusts (REITs) were exempted. A year and a half after the tax took effect, this has kept REITs popular among investors seeking income as well as capital gains.
PRIMARIS RETAIL REAL ESTATEINVESTMENT TRUST (Toronto symbol PMZ.UN; www.primarisreit.com) owns large malls in medium-sized Canadian cities and suburban areas. In all, it owns 33 properties that contain 13.7 million square feet of leasable area.
Primaris has 43% of its properties in Ontario, followed by Alberta, 16%; B.C., 14%; Quebec, 14%; Saskatchewan, 9%; Manitoba, 3% and New Brunswick, 1%. Primaris has a 96.7% occupancy rate.
In the quarter ended March 31, 2012, acquisitions pushed up Primaris’ revenue by 22.6%, to $100.4 million from $81.9 million a year earlier. Cash flow rose 30.8%, to $32.7 million from $25.0 million. Cash flow per unit rose 8.3%, to $0.393 from $0.363, on more units outstanding. The trust yields 5.4%.
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REITs: Primaris takes cautious approach to acquisitions
Primaris aims to keep growing by acquisition, but it takes a cautious approach. For example, in June 2011, it raised $260.6 million in a unit issue to help pay for five malls it bought from Ivanhoe Cambridge.
The $572-million deal was Primaris’s largest purchase to date, but the malls are spread out across the country: three are in Ontario, one is in Alberta and one is in Quebec.
The trust’s strong cash flow and high-quality tenants could make it a takeover candidate.
In the latest issue of Canadian Wealth Advisor, we look at the impact of Primaris’ geographical distribution on the company’s overall risk, and assess whether its units are good value irrespective of its potential as a takeover candidate. We conclude with our clear buy-hold-sell advice on the trust.
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There has been a lot of media speculation about a real estate “bubble” in Canada. Do you see this as a serious risk? Does it discourage you from investing in REITs? Let us know what you think in the comments section below. Click here.
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