H&R Real Estate Investment Trust (TSX: HR.UN) owns and operates a portfolio of interests in 455 Properties with a total leasable area of about 41 million square feet. The portfolio consists of 39 properties located in Alberta, 93 properties located in Ontario, 47 properties located elsewhere in Canada and 276 properties located in the United States.
Enticing valuation
The company has a price to book ratio of just 0.63, dividend yield of 5.21% and market capitalization of $3.83 billion. Debt is low at H&R as evidenced by a debt to equity ratio of just 1.09. The company has average performance metrics with an operating margin of 62.53% and a return on equity of (9.52)%.
Strategies adopted
The objectives of the company are to maximize net asset value per Unit through ongoing active management of the H&R’s assets, acquisition of additional properties and the development and construction of projects. H&R provides holders of the stock with stable and growing cash distributions, generated by revenue it derives from a diversified portfolio of income-producing real estate assets.
The company’s strategy is to accumulate a diversified portfolio of high-quality investment properties in Canada and the United States. The company manages commercial assets with an emphasis on maintaining stable operating cash flow through long-term leases to creditworthy tenants. H&R achieves growth in operating cash flow is anticipated through increases in lease rates built into existing long-term leases of the properties currently held by the company.
Levers of future growth
Additional growth has been achieved by the company through acquisitions. Growth in annual rental rates is also expected from short term leases for residential properties. The company has implemented an investment strategy of acquiring properties to provide additional operating cash flow and enhancing long-term portfolio value.
The company also pursues development projects that are consistent with the objectives and philosophy of H&R. The company finances developmental activities with a combination of long-term property-level fixed rate debt financing, unsecured debentures, and drawings under lines of credit.
Portfolio diversity
The company’s office segment consists of interests in 27 office properties throughout Canada and 6 office properties in select markets in the United States with an average lease term to maturity of 12.4 years. The company leases properties on a long-term basis to creditworthy tenants.
The company’s retail segment includes enclosed shopping centres, single-tenant retail properties and multi-tenant retail plazas as. H&R also holds a 33.6% interest in ECHO, a privately held real estate and development company which focuses on developing and owning a core portfolio of grocery anchored shopping centres in the United States. In total, the retail segment includes 69 retail properties throughout Canada and 242 retail properties in the United States with an average lease term to maturity of 6.6 years.
H&R’s industrial segment consists of 83 industrial properties throughout Canada and four industrial properties in the United States with an average lease term to maturity of 6.7 years. Further, the company’s residential segment consists of interests in 24 residential properties in the United States. These properties are located in strong employment markets where rents are increasing annually.
H&R stock should trade higher as it trades at a fraction of the replacement cost of the company’s properties.
