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Bullboard - Stock Discussion Forum H&R Real Estate Investment Trust T.HR.UN

Alternate Symbol(s):  HRUFF

H&R Real Estate Investment Trust is a Canada-based real estate investment trust. The Company owns, operates and develops residential and commercial properties across Canada and in the United States. The Company operates through the four segments: Residential, Industrial, Office and Retail. The Residential segment consists of approximately 24 residential properties in select markets in the... see more

TSX:HR.UN - Post Discussion

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Post by TeamCommonSense on Dec 20, 2024 12:25pm

Do the math!

jmkOttawa is absolutely correct .... this approach by HR management is extremely unfair to holders of units in nonregistered accounts ... which is why I stated earlier that I liquidated our nonreg holding in early 2023 (after seeing the first boondoggle with the Dec. 2022 SD payable in Jan 2023) ... and then opened a holding in my RRSP of similar size.

So ... consider a hypothetical scenario ... a person in the 50% tax bracket holding HR in a non reg account:

1) Receiving $10,000 in non-cash Special Distribution in Jan/25 but on record for 2024 tax year
2) Since classified as 100% OTH income (as per 2022 and 2023 precedents), tax payable in April 2025 is $5,000
3) The ACB of the HR.un holding is increased by the amount of the non-cash SD ... $10,000
4) Which is "available" to "offset" Capital Gains of $10,000 value at some indeterminate future tax year .... being equal to $2,500 of tax reduction at that point (assuming Team Turdo don't change the inclusion rates again)

So .... simple math .... you pay $5,000 increased tax next year ... you "recapture" $2,500 tax in some future year! Not a winning strategy!

Now ... the bigger question ... why does HR management pull this "con job" on its investors??? And contrast this with several other REITs ... such as PRV.un, NXR.un and BTB.un ... which maximize Return of Capital within their annual cash distribution ... thereby greatly enhancing the value of said REITs in a non-reg account????

Only two reasons I can think of:
1) By not ... repeat not ... paying out the full amount of their annual income in cash to unitholders ... they maintain a low payout ratio ... which is arguably highly attractive to analysts and retail investors in the public market ... and ...
2) They can still "follow the rules" governing REITs ... which require them to pay virtually all income out to unitholders ... which they do through this rather unique blend of cash distributions (monthly and a small SD component) and a large annual non-cash SD

So the unitholders receive all of the income the REIT generates .... but only about half of it in cash form .... pay full tax on the whole shebang .... and the REIT can boast a low payout ratio!

At some point, analysts may take note of this con job .... and let us keep our fingers crossed that other REITs don't try copying HR ... cuz if they do ... you can kiss the REIT sector bye-bye!

Cheers!

Comment by jmkOttawa on Dec 21, 2024 12:32pm
Could not agree with you more TeamCommonSense!
Comment by jmkOttawa on Dec 21, 2024 12:34pm
Thanks for the clear and well written post!!
Comment by TeamCommonSense on Dec 21, 2024 12:58pm
Thanks! And a Merry Christmas and Happy New Year to all Stockhouse bloggers!
Comment by llihevad1 on Dec 22, 2024 6:55am
I agree with the comment that you need to be strategic in your holdings of H&R. With the current special distribution having a large non-cash payment does cause a potential for taxes being paid prior to recovery. A comment on your math: The $10,000 inclusion leads to an increase in the adjusted cost base of the units held. So in your scenario you would pay $5,000 tax, but the adjustment to ...more  
Comment by TeamCommonSense on Dec 22, 2024 10:22am
Apparently u did not understand my analysis! $10k non cash SD results in $5k extra tax next year ...  cuz of OTH classification of SD $10k added to ACB will result in a $2.5k offset saving of Capital Gain tax in the future .... whenever HR.un holding sold So .... net result .... $5k tax paid soon .... $2.5k "saved" eventually Clear now? Sigh!
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