With a potentially above-average return of 7.2 per cent at a 20 per cent discount, H&R REIT represents an ideal option that can provide a generous yield, according to a Canadian analyst.
In an opinion column published by The Motley Fool Canada
, investment commentator Kay Ng noted that the share prices of H&R REIT (between $18 and $25 throughout 2015) are benefiting from the major exposure that its Albertan segment is currently experiencing.
Ng added that as of last September, the product stands among Canada’s largest diversified REITs. H&R REIT covers 512 properties, including industrial, office, retail, and residential assets.
A major factor in this dynamic is the continuous oil price drops in the global market, which has weakened domestic purchases while at the same time stimulating substantial investment from foreign nationals due to the prevailing exchange rates.
“In the third quarter for its Albertan portfolio, 62% of its operating income came from office properties, 33% came from retail properties, and 5% came from industrial properties,” Ng observed.
“Particularly, Encana contributed 72% of its Albertan operating income. Although Encana is BBB rated and its lease expiry is in 2038, its falling earnings and cash flows won’t improve until oil prices recover,” Ng wrote. Comprising 11.6 per cent of H&R REIT’s rental income, Encana is among the product’s leading tenants.
Ng concluded that these characteristics make H&R REIT a relatively safe bet in the in the short and medium term.
“If you believe oil prices will head higher, H&R REIT is a potential investment to hold to get a handsome yield while you wait for its price appreciation,” Ng said.