Over the past several months, a number of announcements have hit the wire concerning the shares of Pure Industrial Real Estate Trust (TSX:AAR.UN), called PIRET for short. Consistent with the company’s long-term plan of divesting non-core assets and expanding into the United States, a number of Canadian properties were sold, and plans for further expansion south of the border was announced in tandem.
The news and subsequent positive reaction by the market was for the benefit of existing shareholder — the shares increased in value in the weeks following these major announcements. For investors looking to make an initial purchase or increase their position, the reality is, the shares have become significantly less attractive.
As we know, the more we pay for a share, the lower the dividend yield. On the flip side, the less we pay per share, the higher the dividend yield. In the past 52 weeks, shares of PIRET have traded at a low price of $4.26 with a yield of 7.3% and a high price of $6.01 with a yield of 5.2%. Currently, shares trade around the $6 mark, offering investors very little upside beyond the dividend.
Although the company is very well run and operates in a very predictable sector/industry (industrial real estate), investors who buy great companies at any price are not as successful as investors who purchase shares in great companies at a fair or basement-bargain prices. At a current price of $6, shares of PIRET are trading at a premium to tangible book value by 11%.
What is the alternative?
Currently yielding close to 7.5%, shares of Dream Office Real Estate Investment Trst (TSX:D.UN) also trade at a percentage of tangible book value. If we calculate the assets minus the goodwill (and intangibles) and minus the liabilities, and divide by the number of shares outstanding, we arrive at a number of $23.78 per share. Currently, shares trade at a price of approximately $20.
Given the company trades at a 15% discount to the net asset value, it may be a good idea for investors to seriously consider this company for their RSP accounts.
But why worry?
When investors are offered above-average yields, there are concerns about the sustainability of the dividend. In this case, the company took steps approximately one year ago to cease the dividend re-investments, thereby limiting the total number of shares outstanding. The company also reduced the dividend at that time, signalling to investors the long-term commitment to deliver sustainable dividends in addition to capital gains to investors who chose to stay the course. To date, management has been successful.
Looking at what kind of company we want to add to our RSP accounts, it is important to select names which are not only fantastic companies, but also trade at fair valuations. In today’s market, we run the risk of being “PIRETed,” but we should never fail to dream!
