Housing Market

Horizon Kinetics On Value In Canadian RE And REITs

In their continued search for yield, many investors have turned to Real Estate Investment Trusts (“REITs”). These companies pay out a significant percentage of their earnings as dividends; accordingly, they have historically provided a high level of income. However, a high dividend payout ratio leaves little in the way of earnings that can be reinvested in the business, such that the REIT must sell more shares in order to acquire additional income?producing properties.

Horizon Kinetics On Value In Canadian RE And REITs

Lately, in order to support continued dividend increases—which are required to support continued share issuance—many REITs have also resorted to reducing their capital expenditures below the levels that will ultimately be required to properly maintain their properties. We have previously touched on these and other risks associated with investing in American REITs and, for the most part, prefer to implement any real estate exposure through owner?operated real estate development and management companies rather than through REITs.

Real estate developers frequently have dormant assets, in that undeveloped land generates no cash flow, which makes such developers more difficult to value using standard metrics such as capitalization rates, price to earnings ratios and adjusted funds from operations multiples. Furthermore, their value?creating projects are generally very long?term in nature, which reduces their utility to investors focused on near?term results.

Broadly speaking, Canadian?listed companies trade at a discount to their United States?listed peers, providing an opportunity to invest in high quality North American companies at attractive valuations.

Canadian REITs

The Canadian REITs yield considerably more than the American REITs despite having lower dividend payout ratios and much more conservative balance sheets. Typically, they pay out 80 percent of earnings. Yet, there is no US?listed exchange?traded fund (“ETF”) for Canadian REITs, even though there are over three dozen publicly?traded REITs in Canada. The market capitalizations of the Canadian REITs are too small to make such a fund a first?order profit opportunity.

See full article on horizonkinetics

H/T ValueInvestingWorld

LEAVE A COMMENT


X
Saved Articles
X
TextTExtLInkTextTExtLInk

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Are you an intelligent investor?

ValueWalkPremium is a website and newsletter for smart investors like yourself. We focus on the latest hedge fund industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers

0