How Canadian Real Estate Investment Trusts (REITs) and listed TSX real estate companies have performed over the last 5 years.
How this data was compiled:
- These companies were selected to only included entities on the TSX
- All data compiled from the Globe & Mail, from Nov. 1, 2011 to Nov. 10, 2016 http://www.theglobeandmail.com/globe-investor
- All dividends were re-invested, all returns do not include any fees, which can impact returns significantly.
- If dividends were not re-invested, all returns would be significantly lower
- Excluded were the REITs that “graduated” from the venture to the senior exchange, and corps that changed into REIT’s (eg:plaza reit) during this time period
TSX REIT Return Summary (2011-2016)
Out of 23 of the listed TSX REITs and Corporate Real Estate Entities:
- Median per year yield with dividends was 8.15% per year
- Median per year dividend only yield was 5.29% per year
- 52% didn’t meet the median yield
- 13% didn’t outperform the Canadian Consumer Price Index (CPI) benchmarked at 2.2% year
- 30% resulted in having the dividend over perform the stock appreciation. (that’s with the dividend reinvested)
- Only 3 companies had 5 year negative yields; Partners REIT at -28.47%, DREAM Office REIT-22.53% and Cominar REIT -8.86%
Are you buying real estate stocks for the dividends or the stock?
For us, the only reason to buy a stock is price appreciation, hats off to you Mainstreet (never issues dividend) at double the median return over the 5 years. When a stock issues high dividends it is to inventive shareholders to buy as the underlying financials are weak (BTB REIT, Cominar, Dream Office REIT). If you are choosing stocks based on dividend yield only buy if you are looking for regular income. If you are looking to always reinvest the dividends- there are other stocks that perform better and should start buying on stock appreciation. If you are buying on stock appreciation, don’t buy a stock yielding dividends, it only serves to create drag on the company. Trust management teams that are tight with cash and re-invest a large percentage into near-term R&D or strategic acquisitions.
We believe that public company mangers should be put money back into the company to enhance its overall value, leading to increases in market capitalization.
Regular readers know that we believe structure trumps all other variables in a fund or company with outside investors. A smart management team could game the TSX (eg: by the stock actually going up) by leading a DPO taking 1st year bank analyst opinions out of the equation and the huge burden of ridiculously high totally unsustainable dividends that forfeited any chance that some of the listed venture real estate companies had.
How a team would do this is:
- Aquire arms-length properties. Typically in the favorite Canadian management game is called Dump & Dump (dump management’s old properties into the entity, then exit (dump) the majority of mgt’s shares for the equity raised. For examples: see every TSX RE IPO over the last decade) The Americans at least have a pump before the dump.
- Tight float; sub 35m, sub 85m fully capitalized.
- Non-REIT entity (there is no benefit anymore to being tax free as corporates don’t pay taxes and keeps any building the company does transparent and accountable)
- No dividend
- Keep it a pure stock appreciation play
- Management team stays very lean, part time CFO, CEO paid under market value.
- Have a very savvy tax accountant (to pay a sub 3% tax, see first capital for unparalleled low tax)
- Canadian or USA Property, tight geographical focus, resulting in lower monitoring overhead
- Pay property sellers in stock with a non-transferable 3 yr cashless warrant, to incentivise holders not to sell until listed entity can pay-down its mortgage, adjust math so that management can re-fiancane the paid down properties pulling out a majority of that paid down equity to cancel the selling of the warrant conversions.
Credit does go to Mainsteet Equity, as they followed this recipe very similar very early on (2004), and are still a stock play rather than a dividend yielding entity and are a 5yr top perfomer.
How to play Listed TSX RE Entities
Regular or lower dividend group gains are seem to be better historically, with less volatility at the “cost” of a low dividend.
Its one or the other, high dividend with poor stock appreciation or low dividend, good stock appreciation.
Of the entire group, the 3 highest 5 year yields came from no dividend yielding companies or very low dividends half were not REITs.
Which is counter intuitive what analysts and other pundits write about to efficient REITs are. We have written about this in the past, here, here.
Low Real Estate Dividend Group:
- Mainstreet Equity Corp.
- Morguard Corp.
- InterRent REIT
- Melcor Developments Ltd.
- Madison Pacific Properties Inc.
- Boardwalk REIT
- Canadian REIT
- Canadian Apartment REIT
- First Capital Realty
- Allied Properties REIT
- Brookfield Canada Office
- CT REIT Trust
- Smart REIT
- Killam Apartment REIT
- Riocan Real Estate Investment Trust
A Better Way
So if you are buying to use stock dividends as income, this income can vary as the company dicates or as the marekt does with the underlying stock price. Private funds on the other hand, are worth looking at because of this lack of volatility. The other issue not addressed here is when to entry/exit we just picked an arbitrary 5 year period based on when this article would publish, a bad entry or exit could decimate public REITs and real estate companies returns, even ones with a low dividend or distribution.
Here are some keys, if you are thinking of investing in a private real estate fund and how they could outperform listed entities:
- Keep overhead/fund administration costs low
- Keep public company governance obligations but lower the cost of doing that
- Build in a profit share component when the fund winds down
- Keep development in separate funds unless the fund has significant scale (over $400m leveraged) and low distribution obligations, but do modest “value adds”
- Focus on revenue & metrics profomas or actual financials, compare them asset class to asset class with your current public holdings.
Table showing TSX reits and corporate entities performance 2011 to 2016
Capital gains / losses
Total dividends / yield
% of returns that dividends make
|InterRent REIT IIP.UN-T||248.49%||12.56%||5%||3.24%|
|Morguard Corp. MRC-T||141.00%||1.74%||1%||0.04%|
|Mainstreet Equity MEQ-T||89.62%||0.00%|
|CAP REIT CAR.UN-T||88.25%||17.47%||20%||4.20%|
|Pure Industrial Real Estate AAR.UN-T||72.91%||25.08%||34%||5.92%|
|Allied Properties REIT AP.UN-T||69.05%||19.18%||28%||4.55%|
|First Capital Realty FCR-T||54.44%||18.82%||35%||4.30%|
|Summit Industrial Income REIT SMU.UN-T||54.35%||159.57%||294%||8.25%|
|Cdn. Real Estate Investment REF.UN-T||53.81%||16.95%||31%||4.05%|
|BTB REIT BTB.UN-T||51.87%||38.37%||74%||9.77%|
|Brookfield Canada Office Prop. BOX.UN-T||48.25%||25.61%||53%||5.08%|
|Killam Apartment REIT KMP.UN-T||46.06%||22.05%||48%||5.13%|
|Crombie REIT CRR.UN-T||35.48%||28.54%||80%||6.55%|
|RioCan Real Estate Investment REI.UN-T||33.71%||23.73%||70%||5.44%|
|Northwest Healthcare Prop REIT NWH.UN-T||29.27%||32.80%||112%||8.13%|
|Artis REIT AX.UN-T||26.86%||38.66%||144%||9.28%|
|Morguard Real Estate Inv Trust MRT.UN-T||25.90%||28.32%||109%||6.69%|
|Melcor Developments MRD-T||23.87%||22.72%||95%||3.78%|
|Boardwalk REIT BEI.UN-T||19.91%||23.94%||120%||5.06%|
|Madison Pacific Properties MPC-T||13.73%||25.44%||185%||3.61%|
|Cominar REIT CUF.UN-T||-8.86%||43.19%||-487%||10.69%|
|Dream Office REIT D.UN-T||-22.53%||49.18%||-218%||8.83%|
|Partners REIT PAR.UN-T||-28.47%||52.36%||-184%||7.29%|
|TOTAL (median) per year return||8.15%|
Table data in this excel file: REIT RETURNS