# REIT's REIT's everywhere



## [email protected] (Apr 28, 2009)

I was just thinking....

in January 2011 Income Trusts are going to be taxed heavily...

Does anyone see a shift from traditional Trusts to REIT's which have managed to slip through the taxation loophole again?


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## takingprofits (Apr 13, 2009)

I for one am being more cautious about trusts having already been burned with one conversion. I still hold Crescent Point which has stated they intend on maintaining their current payout after conversion (which is underway). I also hod, Canadian Oil Sands. I do not hold any others currently and am avoiding business trusts (non oil).

I do have one Reit currently. Reits are more attractive to me for a long term hold as there is less uncertainty because they do not have to convert and am looking to add one more soon.


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## seven3 (Apr 4, 2009)

I've always been thinking that REITs are a good way to go; eliminates the headache of being a landlord and gets you decent diversification.

Does anyone have an opinion on buying REITs vs. rental properties on your own?

How do you think / factor in the leverage of mortgages? Do you consider reits implicitly leveraged already?

Seems like the distributions these days (approx 8% or more) are within the CAP rates that real estate investors typically expect.

Thoughts?


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## Rickson9 (Apr 9, 2009)

My wife and I have avoided REITs since we do not believe in the benefits of diversification and are investing only for capital appreciation.

If we decide to invest in RE we would rather do it ourselves. We would have more control over the maintenance, revenue, debt-equity ratio, etc.


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## CanadianCapitalist (Mar 31, 2009)

seven3 said:


> I've always been thinking that REITs are a good way to go; eliminates the headache of being a landlord and gets you decent diversification.
> 
> Does anyone have an opinion on buying REITs vs. rental properties on your own?
> 
> ...


I've allocated 5% of portfolio to REITs and own REI.UN in our portfolios. We don't see ourselves as landlords at least for another 10 years, so REITs are perfect for us.

We've had a long discussion about REIT distributions in another thread. The gist of it is I'm wary of counting the entire ROC portion of REIT distributions as sustainable. I've written on the blog that I personally consider REITs to be attractive at these prices (of course, you can say that about just about everything else other than bonds).


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## jensencylin (Apr 4, 2009)

[email protected] said:


> I was just thinking....
> 
> *in January 2011 Income Trusts are going to be taxed heavily...*
> 
> Does anyone see a shift from traditional Trusts to REIT's which have managed to slip through the taxation loophole again?


Forgive me for being under a rock....but why?


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## FrugalTrader (Oct 13, 2008)

jensencylin said:


> Forgive me for being under a rock....but why?


Income trusts (besides REITs) will be forced to convert to a corporation. Since corporations pay their dividends with after tax dollars (whereas income trusts flow through their pre-tax income to shareholders), the distribution will most likely be cut significantly.


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## marscat (Apr 3, 2009)

[email protected] said:


> I was just thinking....
> 
> in January 2011 Income Trusts are going to be taxed heavily...
> 
> Does anyone see a shift from traditional Trusts to REIT's which have managed to slip through the taxation loophole again?



I thought a lot of the REITs were _*not*_ going to be exempt from these taxes with their existing structure? RioCan, for example, in their 2008 annual report outlines a plan to qualify for this exemption. What happens if they don't qualify? What changes will they have to make to qualify and how will that affect the distributions?

Or have I misunderstood this whole thing


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## furgy (Apr 20, 2009)

I am heavily invested in REIT's , even with the recent crisis and the resulting lower unit prices and distribution cuts , I am still getting a very good return while I wait for the economy to pick up.

I have been burned on real estate before , rentals can be a big headache as well as costly if things go bad.

One particular REIT of mine (TR.UN) is paying more than a 25% distribution at current unit prices , I bought more at these low prices and am doing very well.

This particular REIT is one of my core holdings and I have made great returns on it in the past , as with anything there is some risk , but at 25% , I will have my money back in four years even if the share price doesn't recover.

I am sure it will and am willing to take that risk.

It is also my opinion that as current income trusts start converting to corporations and reducing distributions , people looking for good income producing investments will start gravitating to REIT's and most REIT's will gain in their unit prices.

That's my plan anyway and I plan to hold on for the long term and reap the rewards of the distributions as well as hope for some capital appreciation , income from REIT's is taxed at a favourable rate as well.

I consider REIT's as part of my fixed income allocation , technically most do not , but they have provided me with a steady above average income in the past and still do so in this market environment.

Only time will tell.


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## ethos1 (Apr 4, 2009)

FrugalTrader said:


> Income trusts (besides REITs) will be forced to convert to a corporation. Since corporations pay their dividends with after tax dollars (whereas income trusts flow through their pre-tax income to shareholders), the distribution will most likely be cut significantly.


Me needing to understand this better & to know more from knowledgeable folks on here familiar with trusts converting back to corporations, so how does this work again -excluding REIT's?

Other than the distributions cut mentioned by FT, what will likely happen to the royalty trusts that convert, does anyone know which ones are likely to drop significantly (if any) or will all of them fall off the edge of the table leaving the royalty trust investors without any value on conversion day

Or, on conversion day is the stock price likely to go which way

for each, I'd be interested to know from anyone with knowledge of this (no guessing please)

Oil trusts

Business trusts

Other trusts


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## AdamW (Apr 22, 2009)

*REITs*

Like anything else if you can buy them at the right price REITs make a good addition to any portfolio.

It's true that if you're compraing buying a REIT to investing in a property and managing it yourself there is a huge "headache factor" you can avoid.

But I also think that, at a minimum, 80% of your return from a REIT will come from the distributions so while their prices are very low today I'm not expecting to get a 10% distribution plus another 10-15% growth / year. But I currently DRIP my RioCan shares so every month I get paid a little more from my tenants


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## furgy (Apr 20, 2009)

ethos1 said:


> Me needing to understand this better & to know more from knowledgeable folks on here familiar with trusts converting back to corporations, so how does this work again -excluding REIT's?
> 
> Other than the distributions cut mentioned by FT, what will likely happen to the royalty trusts that convert, does anyone know which ones are likely to drop significantly (if any) or will all of them fall off the edge of the table leaving the royalty trust investors without any value on conversion day
> 
> ...


It is unclear at this time what will happen to trusts in general and I think that because of that uncertainty , there will be some exiting of trusts in general as we get nearer the conversion date in 2011 , that alone may bring unit prices down , temporarily at least.
Most trusts that have converted so far have cut distributions , but then most companies in general have cut dividends and such to preserve capital in this market environment , so it is impossible to tell untill it happens.
The one thing we do know is that REIT's that qualify as REIT's , wont be affected by conversion.
The rest is anyones guess.



AdamW said:


> Like anything else if you can buy them at the right price REITs make a good addition to any portfolio.
> 
> It's true that if you're compraing buying a REIT to investing in a property and managing it yourself there is a huge "headache factor" you can avoid.
> 
> But I also think that, at a minimum, 80% of your return from a REIT will come from the distributions so while their prices are very low today I'm not expecting to get a 10% distribution plus another 10-15% growth / year. But I currently DRIP my RioCan shares so every month I get paid a little more from my tenants


Adam , I'm with you on the DRIP thing , some REIT's actually give you bonus units for taking more units in lieu of distibution money so your gains are multiplied even more.
I like to hedge against any share price decline a little tho , so I split my REIT holdings between two brokerage accounts , in one I DRIP , the other I take the cash , if a major decline in unit prices occurs , I still have 50% of my accrued returns in cash. 
So far it is a policy that has paid off in this environment , I had a good sum of cash to buy units of other companies while unit prices are very low and diversify a bit more.


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## Rox (Oct 17, 2010)

furgy said:


> I am heavily invested in REIT's , even with the recent crisis and the resulting lower unit prices and distribution cuts , I am still getting a very good return while I wait for the economy to pick up.
> 
> I have been burned on real estate before , rentals can be a big headache as well as costly if things go bad.
> 
> ...


Furgy,... looks like you are spot-on about what you said in the above exactly one year and a few months ago. TR.UN, thugh did not rise too much in terms of price, still the absolute dividend payout did increase. I wouldn't doubt at your entry price, your yield-at-cost would be at a big 25%, lol,... 

But I don't like one thing about this REIT : looking at the past few years, the dividend payout is NOT consistent in terms of the payout frequency through- out the year, I must say,... this year, they payout once every three months, last year, they paid-out over 5 months, and earlier, once-a-month. 

..makes it hard for us to estimate our financial planning,...

http://www.treit.ca/cash_distributions.asp?year=2010


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## furgy (Apr 20, 2009)

You must be looking at a google chart , they're not reliable , they used to pay monthly and switched to quarterly distributions , which they have been doing ever since.

Alas , I have sold it anyway recently , saw a great opportunity in KLH and in order to take advantage of it fully , I had to sell something , TR.UN was my best payer , but also the most risky as it does not qualify as a REIT , so I sold.

Glad I did too , I am up nearly 100% in three weeks on KLH.

I am finding that in a bull market it is much more profitable to be a little more active in trading , hence the switch to KLH.

I would highly suggest people check it out and check out the discussions on stockhouse , it looks promising.

That said , my core holdings are still qualifying REITs.


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## Rox (Oct 17, 2010)

furgy said:


> You must be looking at a google chart , they're not reliable , they used to pay monthly and switched to quarterly distributions , which they have been doing ever since.
> 
> Alas , I have sold it anyway recently , saw a great opportunity in KLH and in order to take advantage of it fully , I had to sell something , TR.UN was my best payer , but also the most risky as it does not qualify as a REIT , so I sold.
> 
> ...


NO, wasn't looking at Google Finance, but right into their website and yes, noticed too that the distributions got reduced from monthly payout to quarterly payout starting from 2009,... I think,...

KLH - is it Stellar Biotech ? What's the yield like ?


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## furgy (Apr 20, 2009)

Stellar , yes.

No Yield , highly speculative at this point , been in business since 1994 but just went public , small float , good management , patents pending , only reliable supplier of klh in the world , could potentially control a niche market.

Worth a look IMO.


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## Rox (Oct 17, 2010)

Thank you, furgy,... we are talking about growth for this stock then, but, don't know, to me,.. in today's era, it is not easy for a start-up to make it,... are we ready to ride along with this idea ? 

A start-up needs to have a solid moat,...backed by regulators most of the time,...


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## humble_pie (Jun 7, 2009)

i think we should have a rule on cmf. Only one post per month, per person, on a specific stock.

that klh looks fishy to me. Pun is intentional. And stockhouse isn't a forum of knowledgeable investors. It's a forum full of the usual pumps, touts, rogues, thieves, knaves, liars, scumbags & penny-stock manipulators.

thinggabboudditt. Do really believe an old abalone fisherman is going to come up with the protein that will carry a cure for cancer ... i mollusc ya.


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## furgy (Apr 20, 2009)

'Nuff said.


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## Eclectic12 (Oct 20, 2010)

[email protected] said:


> in January 2011 Income Trusts are going to be taxed heavily...
> 
> Does anyone see a shift from traditional Trusts to REIT's which have managed to slip through the taxation loophole again?


My understanding is that in Jan 2011 *non-traditional* trusts will face the same taxes as a regular corporation. A "traditional" REIT - as long as it meets the qualifying criteria, faces the same taxes as today.

So it is more of the "Johnny-come-lately" types that converted to an income trust structure, in order to enjoy higher unit prices, P/E's etc. that will have to decide whether:

a) to stay with the trust structure and pay the additional taxes. Likely this
would result in their unit prices plummeting as investors compare 
them with the less-taxed REITs.

b) convert back to a corporate structure, possibly cut their dividends to 
adjust for the increased taxed and be compared on a more even
footing with other corporations.


My guess is that since the change was made for an advantage in the first place, now that there are significant penalties for staying as a trust, the bulk of the trusts that can't qualify as a REIT will convert.


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## Rox (Oct 17, 2010)

Where do we get the latest news about which trust will convert and which trust will stay, from now till year-end ?


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## Eclectic12 (Oct 20, 2010)

Rox said:


> Where do we get the latest news about which trust will convert and which trust will stay, from now till year-end ?


Once and a while I've seen a news article but more often (and more trustworthy) is to visit the website for the trust and to search in the investor section.

Another spot to search is on http://www.sedar.com/, where documentation is filed by company.


That's all I've been able to find so far.


It won't be the latest/most recent but I expect to receive similar information letters as are currently sent when a trust has a special event such as being bought out, odd-lot sale/purchases or special retraction privileges.


Anyone know of a consolidated listing or web-site?


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## Rox (Oct 17, 2010)

Eclectic12 said:


> Once and a while I've seen a news article but more often (and more trustworthy) is to visit the website for the trust and to search in the investor section.
> 
> Another spot to search is on http://www.sedar.com/, where documentation is filed by company.
> 
> ...


Looks like nobody knows of any, means we may have to scan through SEDAR every now and then ?

Anyway, just realized that distributions from Income Trusts may NOT enjoy the Dividend Tax Credits (DTCs) as per the normal dividends from the Canadian corporations, hence, in my opinion, it would be good to go after the converted entities since their payouts will now enjoy the DTCs.


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## Eclectic12 (Oct 20, 2010)

Rox said:


> Looks like nobody knows of any, means we may have to scan through SEDAR every now and then ?
> 
> Anyway, just realized that distributions from Income Trusts may NOT enjoy the Dividend Tax Credits (DTCs) as per the normal dividends from the Canadian corporations, hence, in my opinion, it would be good to go after the converted entities since their payouts will now enjoy the DTCs.


As I mentioned before, if it's specific trust or company, their investor section if they have a web site is the best. I was thinking of www.sedar.com for "one stop shopping" if you have a list of companies to check.

Yes, distributions are not all dividends enjoying the DTC but at the same time, some trusts do have eligible dividends.

Your plan to aim for the trusts that have converted to corporations is good - assuming you like the management/prospects and have been able to figure out if the dividends will be stable.


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## Rox (Oct 17, 2010)

Eclectic12 said:


> Your plan to aim for the trusts that have converted to corporations is good - assuming you like the management/prospects and have been able to figure out if the dividends will be stable.


I have replied to the point for the above statement in the other thread titled : Eligible Dividends. 2 lists of companies are said to be able to provide the stable dividends, but that's just what the analysts say,...


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## Cal (Jun 17, 2009)

General article on Income Trusts that have converted to corporations:

http://seekingalpha.com/article/278...orld-of-canadian-corporations-formerly-trusts


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## Cal (Jun 17, 2009)

http://www.theglobeandmail.com/glob...-how-to-gauge-a-reits-profits/article2193660/


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## CanadianCapitalist (Mar 31, 2009)

John Heinzl's explanation of FFO and AFFO was good. Thanks for sharing Cal.


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## gibor365 (Apr 1, 2011)

Was checking fundamentals on top canadian REITs... Surprisingly , found that REF.UN has EPS 19.77  Is it correct? Other big REITs like REI.UN, BEI.UN etc has EPS much less....
The strange thing ... EPS I got almost the same on TDW amd TMX.COM, however google gave EPS 4.7 , P/E also was completely different : TDW 1.7, TMX 16.2, google 7.33

Whom to beleive???


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## Dmoney (Apr 28, 2011)

Earnings mean nothing for REITs

http://www.theglobeandmail.com/glob...-how-to-gauge-a-reits-profits/article2193660/

They can be completely distorted by mark to market of buildings, and pre-IFRS were distorted by depreciation of assets.

Oops, article was already posted. Reference for details on why earnings are pretty unimportant.


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## gibor365 (Apr 1, 2011)

Dmoney said:


> Earnings mean nothing for REITs
> 
> http://www.theglobeandmail.com/glob...-how-to-gauge-a-reits-profits/article2193660/
> 
> ...


As per this articele:
"Canadian Real Estate Investment Trust (REF.UN-T34.42-0.18-0.52%) reported AFFO of $1.05 per unit in the six months ended June 30, and paid distributions of 71 cents per unit. This represents a conservative payout ratio of 67.6 per cent of AFFO.

RioCan REIT (REI.UN-T24.40-0.15-0.61%), on the other hand, reported AFFO of 63 cents per unit and paid distributions of 69 cents in the six months to June 30, for a payout ratio of about 110 per cent. "

So, I understand REF is more stable than REI...
But how I can figure out what is AFFO of other REITs.?

I was considering to buy some REIT and to select one from: REF (so far my 1st choice), REI, D, CWT and BEI


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## doctrine (Sep 30, 2011)

> Was checking fundamentals on top canadian REITs... Surprisingly , found that REF.UN has EPS 19.77 Is it correct? Other big REITs like REI.UN, BEI.UN etc has EPS much less....
> The strange thing ... EPS I got almost the same on TDW amd TMX.COM, however google gave EPS 4.7 , P/E also was completely different : TDW 1.7, TMX 16.2, google 7.33
> 
> Whom to beleive???


Believe the annual/quarterly reports, which will have the true numbers. Everything else is subject to interpretation.


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