H&R Real Estate Investment Trust (TSX: HR.UN) is a Canada-based open-ended real estate investment trust that owns, operates and develops commercial and residential properties across Canada and the United States. Its segments include Office, Retail, Industrial and Residential.

Key Highlights 

• An Income Play: The group had a proven history of dividend payment. The company announced a monthly dividend of CAD 0.058 per unit payable on October 5, 2021, which equates to an annual distribution of CAD 0.69 per Unit. At the last closing price, the stock was offering a dividend yield of ~4.23%, which is lucrative considering the current interest rate environment.
  

• Healthy Rent collection: High-quality and long-term leased office portfolio, helped the group deriving substantial rent collection, consistent with the tenant base's nutritional profile. The group's 85.7% of revenue comes from investment-grade rated tenants, helping in achieving an overall rent collection of 97% in July, consistent with 97% in Q2 2021 and 98% in Q1 2021.

Source: Company

• Ample liquidity: The group has liquidity of CAD 989.5 million under unused borrowing capacity along with CAD 59.4 million of cash on hand and an unencumbered asset pool of approximately CAD 4 billion as on June 30, 2021, all these stats provide a glimpse of good financial stability.
• Executing strategic plan: Recently, the REIT announced it had entered into agreements to sell a CAD 1.5 billion office portfolio, comprised of the Bow office tower and the Bell office campus. This, transaction has Significantly reduced its Calgary office exposure from 9% to 3% on a fair value basis and provided approximately CAD 800 million of cash proceeds. Furthermore, it reduced its debt to total assets from 50.0% to 43.7%, which is a key positive.
  

Financial overview of Q2 2021 (In thousands of CAD Dollars)

Source: Company

• In Q2 2021 the Group's Rental income stood at CAD 264.3 million compared to CAD 269.8 million in Q2 2020.
• On the back of lower operating expenses, the company posted higher operating profit at CAD 175.8 million compared to CAD 163.6 million in pcp.
• The net income elevated to CAD 94.85 million compared to CAD 35.77 million in pcp.

Risks associated with investment

The Company's revenue and operating results depend significantly on the occupancy levels and rent collection; hence, the Company is subject to general business risks. These risks include government regulation and oversight changes, changes in consumer preferences, fluctuations in occupancy levels and business volumes, competition from other players, and general economic conditions.

Valuation Methodology (Illustrative): Price to Earnings

Stock recommendation

The company has a resilient business model and reports impressive rent collection at 97% in Q2 2021, and 97% in July, which is the first month of the upcoming Q3 2021. We expect an improvement in the rent collection and a decline in provisions, which would further support the company's overall performance. Furthermore, Recently, the REIT announced it had entered into agreements to sell a CAD 1.5 billion office portfolio which provided approximately CAD 800 million of cash proceeds. Along this, it also reduced its debt to total assets from 50.0% to 43.7%, which is a key positive. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating on the stock at the closing price of CAD 16.17 as on October 8, 2020.

One-Year Technical Price Chart (as on October 08, 2021). Source: REFINITIV, Analysis by Kalkine Group 

InterRent Real Estate Investment Trust 

InterRent Real Estate Investment Trust (TSX: IIP.UN) is a real estate investment trust. The Company is focused on the acquisition, ownership, management and repositioning of multi-residential properties.

Key Highlights:

• Higher Occupancy: The company’ occupancy rate in the second quarter of FY21 stood at 95.3%, improved from 93% reported in the same quarter of the previous financial year.
• Consistent dividend distribution: The group has a proven track record of the dividend distribution over the past decade. Notably, at the last traded price, the stock was yielding approximately 1.93%, which is approximately 1.27 time of the Canada 10-Year Government yield of 1.518%.

Dividend Distribution History. Source: Refinitiv

• Trading Above 200-day SMA: Despite recent weakness in the stock, IIP.UN shares are still trading above its crucial long-term support level of 200-day SMA. At the last closing, Price/200-day SMA ratio stood at 1.06x, implies that long-term bullish trend is still intact.

Technical Chart (as on October 06, 2021). Source: Refinitiv, Analysis by Kalkine Group

Risk: The group’s financial performance is dependent on rent collection and occupancy rate. Hence, delay in rent collection or volatility in occupancy rate would affect the financial performance.

Financial Highlights: Q2FY21

Reported Positive Same Property NOI: The company’s NOI was CAD 25.4 million for the quarter, an increase of 2.6% on a YoY basis.

Same Property Margin Expansion: During the quarter just gone by, the company reported NOI margin of 64.7%, which improved by 70 bps on a YoY basis.

Strong Acquisition Performance: The company reported strong YTD acquisition, closed on 358 suites in Ontario and a 50% interest in 45 suites in Vancouver in Q2FY21 and acquired a 50% interest in a 94-suite property in Mississauga in July FY21. 

Valuation Methodology (Illustrative): Price-to-Earnings-Based Valuation

Stock Recommendation

InterRent REIT reported solid performance in the second quarter of 2021, with occupancy rate remain steady and improved NOI and NOI margin on a YoY basis. Further, the company is offering a consistent dividend to the shareholders and yielding decently higher at the current trading levels. Hence, based on the above rationale and valuation done, we recommend a “Hold” rating on the stock at the closing price of CAD 16.87 on October 08, 2021.

One-Year Technical Price Chart (as on October 08, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.