Real estate investment trusts have been hammered by the pandemic with those owning significant amounts of Alberta properties getting hammered even harder.
The H&R REIT used to be a darling recommendation by analysts, especially when the Bow Tower in Calgary, leased largely to Encana, now Ovintiv, was built and leased following the oil patch crash.
Price of units in the $14 billion asset company with holdings in office, retail, residential and industrial properties, fell off the cliff when the pandemic came. The price fell from around $22 to $7.39, recovering to a recent $11.99.
Third quarter results issued early in November indicated 95 per cent of rents collected in October, up from 90 per cent earlier this year.
Retail properties, which include a number of Sobeys stores, are of concern. The REIT expects the 136 stores leased by companies that are restructuring due to the pandemic will shrink to 89 units.
About 39 per cent of the 13.4 million square feet of property is retail with 44 per cent in offices, 16 per cent in U.S. residential and six per cent in industrial sites.
The monthly distribution yields a handsome 5.8 per cent at current prices with payouts at 49 per cent of available funds making the distribution’s future relatively safe.
The trust has several developments that will soon build cash flow. In the United States, the REIT has spent $577 million of a $679 million U.S. investment in residential properties.
In Ontario the trust has spent $82 million of a $146 million industrial park development.
Net asset value, if the company were to break up, is $22.11 a unit, about twice the price.
H&R has some clouds overhanging the company and the future price. The contract by Ovintiv for about two million square feet in the Bow Tower expires in a year. Ovintiv changed its name from Encana and moved headquarters to the United States.
Re-leasing that space in today’s energy climate will be difficult.
The trust has $1.9 billion owing in mortgages with $833 million of that due for renewal in 2021. Any upward shift in interest rates would hurt the bottom line.
A return to a second full-scale pandemic lockdown would reduce income and the unit price
This investment trust might be of interest to patient investors willing to collect the nice yield while they wait for the price to recover.
Or they might investigate the two convertible debenture issues by H&R.
In any case, it deserves to be on the watch list.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at ronjoy@sasktel.net
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
