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Which Stocks Make the List of Top 10 REITs on the TSX?

Real estate investment trusts (REITs) borrow money to make money. This sector tends to have high financial leverage, which is a concern if leverage is too high or when lending rates rise. If you’ve been following this sector, you will notice that many TSX REITs have had an October price bump-up. Of the 19 REITs on the TSX with market capitalization above $1 billion, I used the following criteria to arrive at a top 10 list:

1. Are current revenues growing or shrinking?
2. Is the debt-to-equity ratio low or high?
3. How high is the dividend yield?
4. Is the price-to-cash flow ratio low or high?

I ranked all 19 REITs according to each of these considerations. Like a game of golf, the REIT with the lowest score across each of these equally weighted criteria would be the top-ranking REIT. Of course, there are several other important financial metrics to consider, but this quick screen gives you a sense for companies that are producing revenue, sharing profits with shareholders through the dividend, and low on financial leverage. These are all good things, right?

Here is the REIT top-10 list in reverse order:

10. Riocan Real Estate Investment Trust (TSX:REI.UN) is the largest REIT in Canada, primarily focused on retail and much discussed.

9. Northview Apartment Real Estate Investment Trust (TSX:NVU.UN) is rebounding after lower earnings per share, but its debt-to-equity is among the highest.

8. Allied Properties Real Estate Investment Trust (TSX:AP.UN) is up 20% over 52 weeks — a great run for this REIT, which has maintained a lower debt over the last two years.

7. Canadian Real Estate Investment Trust (TSX:REF.UN) has a great track record of 16 consecutive years with a dividend increase. This company seems to be diversifying by adding industrial warehouses to its portfolio of 205 properties, which are predominantly retail.

6. Crombie Real Estate Investment Trust (TSX:CRR.UN) had a flat revenue quarter, but it seems to be fairly valued and pays a 6.7% dividend.

5. H&R Real Estate Investment Trust (TSX:HR.UN) is the second-largest TSX REIT, and I’ve written favourably about this company previously.

4. Dream Global Real Estate Investment Trust (TSX:DRG.UN) trades on the TSX, but holds property in Canada and Europe in almost equal portions. It has the second-highest dividend at 7.2%.

3. Artis Real Estate Investment Trust (TSX:AX.UN) currently pays the highest dividend at 7.8%, and this appears to be something the company can maintain. A few years ago, this company had a high debt-to-equity ratio, and that has been shrinking consistently with each quarter. This helps to explain the 21% stock price gain in one year.

2. It came as a surprise that NorthWest Health Prop Real Est Inv Trust  (TSX:NWH.UN) was ranked number two. This REIT saw revenue increase this quarter by 14% compared to the same quarter in 2016. The low valuation is attractive, but this company also has the highest debt-to-equity ratio on this list.

1. And the number one REIT was Pure Industrial Real Estate Trust (TSX:AAR.UN). I have been watching this stock run up; this company is doing well with a strong rapport with its industrial tenants, where vacancies are very low. The dividend yield is 4.7%, which is low on this list, but this growth stock is not your conventional REIT. Revenue increased 22% this quarter, which was the largest by a fair margin.

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Fool contributor Brad Macintosh has no position in any stocks mentioned. NORTHWEST HEALTHCARE PPTYS REIT is a recommendation of Stock Advisor Canada.

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