Friday, September 26, 2014

Granite REIT

I do not own this stock of Granite REIT (TSX-GRT.UN, NYSE-GRP.U). I first bought some of this stock in 2003 when it was called MI Developments (TSX-MIM.A). It was a company connected with Frank Stronach and Magna. TD bank also had an Action Buy Call (Strong Buy) on this stock. By the December 2006, it was doing well and my stock was up some 15% per year. I bought some more. The year of 2006 was the last time I did well on this stock. It kept going down and I sold in 2009 being discourage it would ever do well again.

In 2012 the company changed its name from MI Developments (TSX-MIM.A) to Granite Real Estate (TSX-GRT.UN; NYSE-GRP.U) and it got rid of all its investments that were not in real estate. Because of this revenue dropped. If you look at the company, Revenue per Share is down by 27% and 15% per year over the past 5 and 10 years.

If you look at just Real Estate Revenue per Share, it is down by 5.7% over the past 5 years, but up by 3.33% over the past 10 years. Analysts expect that revenues will continue to grow at just north of 8% per year in 2014 and 2015. If you look at the second quarter, revenue is going in the right direction.

When this stock was turning into a REIT, the dividends were hiked up at 400% in the later part of 2011. At that time dividends were paid in US$ and quarterly. Dividends were changed to CDN$ in 2012. In 2013, dividend payments were changed to a monthly mode of payment. Dividend growth over the past 5 and 10 years come in at 21% and 18% per year. However, this will not be the rate going forward because of the one big dividend hike in the later part of 2011.

The last dividend increase was in 2014 and it was for 4.6%. When the dividends were changed to monthly, only 11 payments were made in 2013 because of the timing of the dividend payments. The dividend yield is still quite good as the current yield is at 5.55%.

Not only has this company changed the reporting currency, but in 2013, the company changed their accounting rules from US GAAP to IFRS (the current Canadian standard). This makes it more difficult to really compare values over time. On the other hand, accounting rules seem to change almost every year.

Over the past 5 and 10 years, the outstanding shares have not changed. Shares have increased due to stock options and have decreased due to Buy Backs. I have already covered revenue above. For EPS, if you look at 5 year running averages over the past 5 and 8 years, it has grown at the rate of 22% and 73% per year. Note that there have been a number of years of losses, with 4 years of losses in the past 10 years.

However, if you look at Funds From Operations (FFO), which this company consistently reports on, the FFO per Share is down by 8.8% and up by 2.4% per year over the past 5 and 10 years.

The growth in cash flow is not anywhere near the same as for earnings, with growth over the past 5 and 10 years at 3% and 4% per year. If you look at 5 year running averages, the growth is at 10% and 7% per year over the past 5 and 9 years. There are no years of negative cash flow.

I cannot get a fix on the Price/Earnings per Share Ratios because of the number of negative earnings years. However, the current P/E Ratio of 12.03 is not very high. This is based on a stock price of $39.57 and 2014 EPS estimate of 3.29.

There is a problem as this company always reports the FFO but not always the EPS, so the estimates may not be really for EPS. However, the 5 year median P/FFO Ratio is 13.10 and this is below the current P/E Ratio of 12.03.

The 10 year Price/Book Value per Share is 0.95 and the current one is at 1.12 a value some 18% higher. This still puts the current P/B Ratio in the reasonableness range, but towards the top end of this range. However, a P/B Ratio of 1.12 is rather low.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. Most of the recommendations are a Hold, but the consensus would be a Buy. The 12 month stock price consensus is $43.30. This implies a total return of 14.98% with 5.55% from dividends and 9.43% from capital gain.

On BBN News Derek Warren, Portfolio Manager at Morguard Financial Corp. recommends Granite REIT as a core stock. He likes the fact that its core tenant is Magna International.

Sound bit for Twitter and StockTwits is: REIT at reasonable price. I think that the price of this REIT is currently reasonable. The company has a good main tenant and this is a plus. See my spreadsheet at grt.htm.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

Granite is a global real estate operating company engaged principally in the acquisition, development, construction, leasing, management and ownership of a predominantly industrial rental portfolio of properties in North America and Europe leased primarily to Magna and its automotive operating units. Members of the Magna International Inc. group of companies are our primary tenants. Its web site is here Granite REIT.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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