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Real estate investments to cushion your portfolio

The increased uncertainty in the economy and volatility in the stock markets is causing investors to stumble on their investment decisions and looking to diversify their portfolios.

It is widely viewed that real estate is recession-proof. While the large capital investment is the common hurdle that prevents most investors from dipping their feet in the water, we look at real estate investment trusts (REITs) as the welcoming alternative. REITs enable investors to diversify their portfolio by owning shares of real estate properties with the desirable feature of liquidity while earning some steady monthly income.

WPT Industrial Real Estate Investment Trust (“the REIT”) (TSX: WIR.U, WIR.UN) focuses on acquiring, developing, and managing industrial properties primarily located in the United States.

Diving into the fundamentals using Inovestor’s Stock Guide platform, the REIT has demonstrated strong performance YOY with an upward trending revenue and controlled cost of operations. With a decent return on invested capital, the company appears to have no major issue meeting its debt obligations as evidenced by several historical debt-related ratios, a healthy interest coverage ratio, and a comfortable level of cash. It is also worth noting that the operating revenues do not follow the growth of assets and debt. As a result, asset turnover is declining while the return on assets is increasing.

2019-12-31 2018-12-31 2017-12-31 2016-12-31 2015-12-31
Accounts Receivable / Days 8.255 7.776 7.658 7.448 6.659
Acid Test 0.194 0.219 0.188 0.549 0.248
Assets to Debt 4.98 3.185 2.868 2.514 2.341
Assets to Debt + EECD 4.98 3.185 2.868 2.514 2.341
Cash Flow to Debt 0.248 0.158 0.159 0.152 0.15
Cash Flow to Debt + EECD 0.248 0.158 0.159 0.152 0.15
Current Ratio 0.194 0.219 0.188 0.549 0.248
Debt to Equity 0.366 0.605 0.662 0.835 1.631
Debt + EECD to Equity – EECD 0.366 0.605 0.662 0.835 1.631
Debt Ratio 0.268 0.377 0.398 0.455 0.62
Debt Ratio + EECD 0.268 0.377 0.398 0.455 0.62
Dividend Payout  (Common) 44.504 67.994 57.298 68.935 61.823
Dividend Yield 7.159 8.044 7.516 8.599 8.339
Earnings Yield 16.749 11.727 13.114 12.4 13.435
Interest Coverage 4.944 3.771 4.811 3.576 2.584
Net Profit 83.347 53.175 64.199 47.791 31.977
Price to Book Value 0.798 0.772 0.855 0.804 0.827
Price to Cash Flow 7.614 7.85 7.232 5.679 3.375
Price to Invested Capital 0.584 0.481 0.515 0.438 0.314
Price to EBITDA 4.68 6.204 6.041 5.808 4.547
Price to Sales 4.977 4.538 4.896 3.853 2.372
Price to Earnings 5.971 8.528 7.625 8.064 7.443
Return on Invested Capital 10.485 7.387 7.574 6.749 6.911
Return on Common Equity 11.555 7.08 9.537 7.488 7.506
Return on Assets 6.097 4.378 5.148 4.154 2.868

 

Change in supply chain management will play a key role in the real estate allocation in a portfolio. Given that WPT Industrial Real Estate Investment Trust is engaged mostly in the Industrial sector and the US President’s call to reclaim the global supply chain back in the U.S, investing in companies that are vertically integrated seems to be a good strategy. Intuitively speaking, Industrial REITs will benefit from manufactures relocating operations to North America in search of warehouse and distribution centers

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