I have recently taken an interest in two Canadian REITs, Dream Office Real Estate Investment Trust (TSX:D.UN, Financial) and Artis Real Estate Investment Trust (TSX:AX.UN, Financial). They are selling below tangible book value, are free cash flow positive, pay decent dividends and are buying back shares. Share buybacks indicate that management could feel that the shares are undervalued.
| Ticker | Company | Current Price | Market Cap($M) | EnterpriseValue ($M) | Revenue($M) | Cash Flow fromOperations | Free CashFlow | PE Ratio | PB Ratio | PS Ratio | Price-to-Operating-Cash-Flow | Price-to-Free-Cash-Flow | Price-to-Tangible-Book |
| TSX:D.UN | Dream Office Real Estate Investment Trust | 26.14 | 993.27 | 1,998.99 | 154.11 | 95.81 | 54.69 | 9.52 | 0.81 | 7.49 | 15.38 | 27.08 | 0.82 |
| TSX:AX.UN | Artis Real Estate Investment Trust | 13.19 | 1,265.43 | 2,829.85 | 342.03 | 192.85 | 176.31 | 5.07 | 0.75 | 4.02 | 9.02 | 10.22 | 0.75 |
Dream Office
Dream Office REIT (TSX:D.UN, Financial) owns well-located, high-quality central business district office properties in major urban centres across Canada, with a focus on downtown Toronto. As at Dec. 31, 2021, Dream Office has 30 investment properties with 5.5 million square feet of gross leasable area, with an 11,000 sq. ft. average tenant size, 5.2 year weighted average lease term and 85.5% portfolio occupancy (including committed).
As can be seen in the valuation panel below, the company's stock price is below tangible book value, i.e., the properties are worth more than the stock.
The company pays a 3.83% dividend and has an impressive 6.6% three-year average share buyback ratio.
| Dividend & Buy Back | Current |
| Dividend Yield % | 3.83 |
| Dividend Payout Ratio | 0.36 |
| 3-Year Dividend Growth Rate | 2.9 |
| Forward Dividend Yield % | 3.83 |
| 5-Year Yield-on-Cost % | 2.57 |
| 3-Year Average Share Buyback Ratio | 6.6 |
Artis
Artis REIT (TSX:AX.UN, Financial) owns properties in Canada and the U.S., with retail accounting for 20.0% of properties, industrial for 34.9% and office for 45.1%.
The REIT pays out a dividend of 4.55% and is buying back shares at a 3.7% annual rate.
| Dividend & Buy Back | Current | |
| Dividend Yield % | 4.55 | |
| Dividend Payout Ratio | 0.22 | |
| 3-Year Dividend Growth Rate | -20.6 | |
| Forward Dividend Yield % | 4.55 | |
| 5-Year Yield-on-Cost % | 2.04 | |
| 3-Year Average Share Buyback Ratio | 3.7 | |
Conclusion
Property values are inflating across the board as the Canadian and U.S. economies continue to recover from the pandemic. REITs are also a great inflation hedge, so I believe both of these securities could be solid investment opportunities for income and capital appreciation.
