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Adventures in DRIPping
Looking at Real Estate Trust DRIPs

Robert D. Gibb

In this article we’ll look at what is available for DRIPpers in Real Estate Investment Trusts or REITs.

Many people consider REITs to be the most stable and least risky of Income Trusts. As such you would expect the yields of REITs to be considerably lower than resource and business trusts. Interestingly, many business trusts now have yields lower than most REITs. However, the range for yields, at the time of writing is commonly 7% to 10% on REITs and 5% to 13% on business income trusts. This of course does not take into consideration trusts that have suspended distributions. What is obvious is that REITs have yields in a much narrower range.

The Spread Revisited

Before looking at the REITs let’s look again at the Premium Plans now being offered by many trusts. I’ve received several queries as to whether it is better to be in the DRIP or the Premium Plan when a company offers both options. Individual plans will vary but typically trust DRIPs reinvest dividends at 95% of the unit price. When the investor opts for the Premium Plan instead then 102% of the distribution is received in cash.

Looking at the numbers:

In the DRIP if $10 is payable in distributions and the unit price is $10 then the reinvestment price is $9.50 and the investor receives 1.0526 new units ($10/$9.50).

In the Premium Plan if $10 is due then $10.20 is payable in distributions. Received in cash any reinvestment would be at full unit price. If the unit price is $10 then the investor receives 1.0200 new units ($10.20/$10).

Clearly, on a numerical basis, the DRIP is superior to the Premium Plan.' However, considerations like individual timeline investing horizons or the immediate need for income might make the Premium Plan more acceptable for some people.

REIT DRIPs

Most Canadian REITs offer dividend reinvestment plans and most offer a discount on reinvested dividends of 3, 4 or 5 percent. This article is most concerned with those DRIPs that also offer a Unit Purchase Plan (UPP) that allows for optional purchases of additional units. 'The yields quoted below are current for the time of writing. As noted with the trusts previously discussed, optional cash payments for REITs are higher than for equity DRIPs.

Canadian Real Estate Investment Trust (TSX: REF.UN 7.22%)

 CREIT owns a portfolio of 115 retail, office and industrial properties in Canada and Illinois, USA with more than 15 million square feet of leasable space. CREIT aims at stable clients, e.g. Government of Canada, and quality locations. Assets have grown from $37 million in December 1993 to $1,192.9 million by December 31, 2002 - an average annual growth rate of 47%.

Optional cash purchases (OCP) are a minimum $250 per monthly purchase to a maximum purchase of $25,000 per year. OCPs are invested at the weighted average price of units traded on the TSX for the five trading days preceding the date of purchase of additional units.

Dundee REIT (TSX: D.UN 8.72%)

Dundee REIT operates over 13 million square feet of quality and affordable business, industrial and office properties in seven major Canadian cities and Atlanta, Georgia , USA . The portfolio consists of 178 properties split by square footage as 56.5% industrial, 33.6% office and 9.8% retail.

Dundee offers a 4% bonus on Reinvested dividends. Minimum OCPs are $1,000 per month to a maximum of $250,000 per calendar year. Unit price is also a five day weighted average for the period preceding the distribution date “generally” the 15th of the month.

 Firm Capital Mortgage Investment Trust (TSX: FC.UN 8.10%)

When it comes to REITs people think of apartment buildings, offices and malls. Firm Capital, on the other hand, deals in mortgages by servicing niche markets often over-looked by larger lending institutions. Firm Capital Corporation provides first and second mortgages for residential, construction, bridge & equity financing to the builder, developer, & real estate owner marketplace. Their portfolio is approximately 58% residential, 29% commercial first mortgages with second mortgages and other financings accounting for the remaining 13 per cent.

Minimum OCPs are $1,000 per month to a maximum $12,000 per calendar year.

H&R Real Estate Investment Trust (TSX: HR.UN 6.81%)

H&R REIT holds interests in a principally Canadian portfolio of 31 office, 97 industrial and 45 retail properties and 5 development projects totally 29 million square feet with a book value of approximately $3 billion. The focus is long term lease agreements with contractual rent escalations to creditworthy tenants. The portfolio is approximately 60% industrial, 22% office and 18% retail in terms of square footage. Properties are principally located in the Toronto area.

Minimum OCPs are $250 to a maximum of $13,500 per calendar year.

RioCan Real Estate Invesment Trust (TSX: REI.UN 7.14%)

Canada 's largest real estate investment trust, RioCan, owns or has joint venture ownership interests in a portfolio of 182 retail properties across Canada totaling 43 million square feet. While the trusts above have focused on major urban centres RioCan has a core strategy of:

. owning and managing community-oriented neighbourhood shopping centres anchored by supermarkets, together with a rapidly expanding mix of new format retail centres.

While over 60% concentrated in Ontario, RioCan can be found in communities like Vernon, BC or Moose Jaw, Saskatchewan as well as Toronto or Montreal.

Minimum OCPs are $250 per month to a maximum $25,000 per calendar year.

Updates

Thanks to a couple of readers we have information on two more Canadian DRIPs

Gorlick at the DRIP Investing Resource Centre (http://dripinvesting.org) came across Pulse Data Inc. (TSX: PSD):

 .a growing Calgary-based Company, which specializes in acquiring, marketing and licensing seismic data and seismic surveys in the Western Canadian Sedimentary Basin.

Considerably smaller than the familiar Canadian equity DRIPs, Pulse Data Inc. currently trading around $1.65 is profitable and yields 3.07%. The bad news is that minimum OCPs are $2,000 to a maximum of $50,000 per calendar year.

Reader Johnny Young alerted me to the fact that Contrans Income Fund (TSX: CSS.UN) has started a DRIP plus UPP. Contrans is a leading provider of truckload transportation services throughout Ontario, Quebec, Atlantic Canada and the Eastern, Midwestern and Southern United States as well as school bus transportation in Central and Eastern Ontario.

Minimum OCPs are $250 a month to a maximum of $5,000 per month.

Contrans can now be added to the Arctic Glacier Income Fund (TSX: AG.UN) as the second business income trust to offer a DRIP plus UPP.

Current Events

Telus (TSX: T) has announced the suspension of its 3% discount on reinvested dividends.

Robert Gibb, 401-2910 Cook Street, Victoria, BC, V8T 3S7 (250) 383-7075 [email protected]. Robert Gibb is a retired school teacher. He gives seminars on dividend reinvestment plans. Mr. Gibb is a frequent contributor to Internet DRIP boards under the nickname OperaBob.