Why Cominar Real Estate Investment Trust Is a Screaming Buy

Cominar Real Estate Investment Trust (TSX:CUF.UN) is a terrific buy at these levels. Here’s why.

| More on:
The Motley Fool

The middle part of 2013 wasn’t a good time to hold real estate investment trusts.

The entire sector sold off aggressively as the market seemed sure higher interest rates were just around the corner. In just a few short months, some of the strongest names in the sector were down more than 20%. Shares of RioCan Real Estate Investment Trust (TSX: REI.UN) fell from more than $28 each to a low of just over $23. H&R Real Estate Investment Trust (TSX: HR.UN) didn’t fall quite as much, but the company still shed nearly 15% during the same time. Even with a distribution of 5-6%, it’s hard to make up for such a huge price decline.

For patient investors, the great REIT selloff of 2013 is nothing but a memory. Both RioCan and H&R have recovered, and are close to hitting new highs. In fact, pretty much the entire sector has recovered, with one notable exception.

Shares of Cominar Real Estate Investment Trust (TSX: CUF.UN) just haven’t budged. The company hit a high of nearly $24 back in May of last year, and shares have languished since. They currently sit at $19.28 each.

There’s no reason for Cominar’s shares to be this cheap. The company is well ran, is actually raising its distribution, and has at least 20% upside. Plus it pays one of the highest dividends on the entire TSX.

One of the reasons suggested why investors are avoiding Cominar is because of the company’s Quebec roots. Out of the company’s 526 properties, more than 400 are located in La Belle Province. The company has been working hard to expand operations outside its home province — to a certain degree of success — but it’s still viewed as a Quebec centric play.

The company is controlled by the Dallaire family, which holds more than 7% of the units in the company, representing approximately $200 million of the family’s wealth. Investors should be happy that the founders still have so much skin in the game.

From a book value perspective, shares are very cheap. The company trades at a price to book ratio of just 0.86, a pretty big discount to its peers, which are mostly in the 1.0 to 1.2 range. All it needs to do is recover to just slightly over book value to give investors a 20% capital gain, which isn’t out of the question.

It also pays one of the most generous dividends in the sector, currently yielding 7.6%. The monthly distribution looks to be pretty safe, since the company just announced a 2% increase, and the payout ratio is under 90%.

Cominar is cheaper than its peers, pays a great dividend, and has a founding family with a bunch of shares. And those aren’t even the main reason why you should buy the stock.

Huge breaking news

Last week the company announced it was acquiring 15 landmark properties in Ontario and Quebec from Ivanhoe, a real estate subsidiary of the Caisse de dépôt. It’s paying $1.5 billion for the package, which includes 10 shopping centers and five other office and industrial locations. The cap rate on the deal is 6.5%, which is pretty attractive in this low interest world.

While this acquisition pushes up the company’s debt levels in the near term, over the long haul it’s a terrific buy. It’s expected to be immediately accretive to cash flow, and the properties already have a occupancy level comparable to the rest of Cominar’s portfolio. Management even expects to be able to swallow the acquisition and stay under its self-mandated 90% payout ratio target.

By staying near home, Cominar has found an opportunity to increase its assets by more than 25% all while maintaining discipline on its payout ratio. It trades at a discount to its peers, and has a terrific yield. There are many reasons why investors should buy Cominar, this latest acquisition is just icing on the cake.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stocks mentioned.

More on Investing

Happy family father of mother and child daughter launch a kite on nature at sunset

3 Soaring Stocks to Hold for the Next 20 Years

These three stocks are good bets for the long haul, given their healthy long-term growth prospects.

Read more »

grow dividends
Tech Stocks

Celestica Stock Is up 44% Since Earnings: What Investors Need to Know

Celestica continues to benefit from strong demand and production efficiencies, yet the stock remains undervalued.

Read more »

A plant grows from coins.

2 Dividend Stocks Paying 5% or More That Could Beat the Market in 2024 and Beyond 

Here are two top dividend stocks long-term investors may certainly want to consider for their yields and growth profiles right…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

Love Value Stocks? 2 That Are Screaming Buys in May 2024

Patience can pay off by investing in these two value stocks with nice dividends and the potential to turn around.

Read more »

healthcare pharma
Tech Stocks

What’s Going on With WELL Health Stock?

WELL stock (TSX:WELL) made strong moves once again, with record earnings and even higher guidance for 2024.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

2 Everlasting Canadian Stocks for Your RRSP

The Canadian National Railway (TSX:CNR) stock is worth owning for the long haul.

Read more »

money cash dividends
Stocks for Beginners

Is TD Stock the Best Dividend Stock for You?

Shares of TD stock (TSX:TD) plunged on the news of a money laundering probe. But could this mean it's a…

Read more »

exchange traded funds

New to Investing? Get Started With This Easy, Hands-Off Method

Vanguard S&P 500 Index ETF (CAD-hedged) (TSX:VSP) is a glorious first investment candidate for beginner investors.

Read more »