On April 18, 2013, Dundee REIT (TSX: D-UN, OTC: DRETF) confirmed its monthly distribution for May: CAD0.18666 per unit, or CAD2.24 on an annualized basis. That’s up from the CAD0.183, or CAD2.20 on an annualized basis, the REIT paid unitholders in April.

It’s a modest, 1.8 percent boost. But it’s notable because it’s the REIT’s first-ever distribution increase. And it’s enough to earn the REIT, a CE Portfolio Conservative Holding since February 2012, an increase in its buy-under target to USD39.

What makes Dundee REIT one of two Best Buy recommendations for May are its portfolio of high-quality properties that are occupied by high-quality tenants; the fact that it’s maintained a steady distribution for nearly a decade, surviving a serious recession during this span; and that management continues to demonstrate solid judgment, in terms of maintaining conservative financial policies as well as sticking to a disciplined, focused approach to portfolio management.

In October 2012 Dundee REIT spun off its industrial portfolio, consisting of 77 properties, to Dundee Industrial REIT for CAD575.5 million. Dundee received CAD160.3 million in cash and a 30.9 percent stake in Dundee Industrial that has since reduced to 26.4 percent.

Following the disposition of its industrial assets Dundee is now solely focused on office properties, with the majority of its portfolio concentrated in central business districts in nine of Canada’s top 10 office markets.

Dundee’s tenants, including Canada’s third-biggest bank, the federal government and five provincial governments, two of the country’s biggest telecoms and several other very large corporations, are of high quality and are signed on for lease terms that provide solid support the REIT’s distribution.

As of Dec. 31, 2012, Dundee’s largest tenant was Bank of Nova Scotia (TSX: BNS, NYSE: BNS), which accounted for 4 percent of gross leasable area but 7.9 percent of gross rental revenue. The average remaining lease term was 11.6 years.

The Government of Canada is No. 2 in terms of revenue, accounting for 6.9 percent. The 6.9 percent of Dundee’s “owned area” booked by the feds is under an average remaining lease term of 3.8 years.

Together the provincial governments of Ontario, Quebec, Alberta, Saskatchewan and British Columbia take up 9.3 percent of Dundee’s office space and account for 8 percent of rental revenue. The five governments are signed to Dundee properties for an average of 6.3 years.

Bell Canada, the operating unit of BCE Inc (TSX: BCE, NYSE: BCE), and TELUS Corp (TSX: T, NYSE: TU) together cover 2.9 percent of Dundee’s owned area and provide 3.5 percent of revenue. No. 1 and No. 3 among Canadian telecoms, Bell Canada and Telus are under lease at Dundee properties for 5.3 and 3.3 years, respectively.

Enbridge Inc (TSX: ENB, NYSE: ENB), the biggest oil and gas pipeline company domiciled in Canada and the REIT’s No. 6 tenant in terms of square feet, leases 1.1 percent of Dundee’s owned area, generates 1.5 percent of its revenue and is under lease for 5.9 years.

All told these 10 tenants account for 24.2 percent of Dundee’s owned office space and generate 27.2 percent of the REIT’s revenue, under a weighted average remaining least term of 6.1 years. These are solid underpinnings, but the figures demonstrate as well that Dundee is not tied any too tightly to any single tenant.

As of Dec. 31, 2012, Dundee’s portfolio included 173 office properties (205 buildings) spanning approximately 23.1 million square feet of gross leasable area, with 22.9 million square feet of office properties. The occupancy rate across the office portfolio was a solid 95.1 percent, well ahead of the national industry average occupancy rate of 91.5 percent as reported by CB Richard Ellis in its Canadian Office MarketView for the fourth quarter of 2012.

As of late February 2013 Dundee had completed renewals or found replacement tenants for 46 percent of the 2.8 million square feet of gross leasable area it had coming into vacancy this year, 1 million of the 1.3 million square feet to renewal tenants. Renewal rates were, on average, 5 percent higher. New lease rates, meanwhile, were up 14 percent over the average expiring rents for the year.

Management anticipates these positive trends will continue, as it continues to capitalize on rising office rents in key markets such as Toronto and Calgary.

This week Dundee closed a previously announced public offering of 6.4 million units at CAD36.20 per, more than the 5.5 million units initially intended as the underwriting syndicate exercised to the fullest extend its overallotment option. Dundee will see gross proceeds of CAD230 million, up-sized from an original plan to raise CAD200 million due to demand.

Management will use the cash to expand Dundee’s portfolio of high-quality office properties, including acquisitions currently under contract and on the way to close, and to repay existing debt.

A major acquisition is what drove Dundee’s addition to the CE Portfolio 15 months ago. When management closed the deal to buy Whiterock REIT in March 2012 it was left with the fourth-largest real estate investment trust in Canada, giving it 88 properties, adding approximately 11 million square feet and providing further tenant and geographic diversification.

Greater scale also affords Dundee access to better financing terms, a fact demonstrated by the recent equity offering. Although recent acquisitions have been funded by debt, management has reduced outstanding obligations with proceeds from asset sales.

Dundee is exposed, of course, to a segment of the real estate industry that’s particularly sensitive to economic ups and downs. Calgary, for example, suffered a slowdown in the third quarter of 2012 as commodity prices declined and energy-patch activity slowed.

Conditions there had improved as of Dundee’s fourth-quarter and full-year 2012 results conference call, management noting that vacancies had declined by 30 basis points to stabilize at 7 percent and that rents for top-quality properties had continued their “upward trajectory.”

Dundee’s occupancy rate in this key energy-focused city ticked up by 190 basis points to 95.5 percent. And Cenovus Energy Inc (TSX: CVE, NYSE: CVE) is slated to move into 140,000 square feet at Dundee’s Rocky Mountain Plaza property beginning in July 2013.

The REIT’s expiring rents over the next 12 months in Calgary are 7 percent below market average, providing an excellent opportunity for Dundee to see a boost to net operating income.

Dundee’s biggest geographic market by square footage (46 percent of overall gross leasable area as of Dec. 31, 2012) and net operating income (47 percent in 2012) is Toronto. After four quarters of rising rates in Canada’s largest city during the last three months of 2012 vacancies declined by 10 basis points to end the year at 8.3 percent, as downtown vacancies fell by 40 basis points to 4.5 percent.

For comparison sake, the lowest vacancy level for downtown Toronto–4 percent–was established in 2011. Tightening supply has pushed average rents 7 percent higher in the central business district of the city during the first quarter of 2013, and Dundee is seeing solid new lease and renewal activity and encouraging rental-rate growth.

Trends in other eastern as well as western Canadian markets suggest Dundee’s occupancy rate across its portfolio will move modestly higher, while new and renewal rental rates suggest net operating income will continue to grow. Management reported comparable-property net operating income growth of 3.5 percent for the fourth quarter of 2012 and 2.6 percent for the year.

Overall, the portfolio’s average rents are 12 percent below market, with 10 million square feet of gross leasable area expiring over the next four years. Organic net operating income growth should provide at least solid support for distribution maintenance at the new rate and perhaps serve as the foundation for more modest payout growth.

Management will report results for the first quarter of 2013 on May 8.

Dundee REIT, currently yielding more than 6 percent, is a buy under USD39 for solid income.

The second of May’s Best Buy recommendations–Aggressive Holding Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–will also report its results for the first three months of 2013 on May 8.

In mid-April management provided an update on what it calls the “Parkland Penny Plan,” a modestly named initiative that’s beginning to bear significant fruit.

The Parkland Penny Plan is a five-year strategic effort that aims to double 2011 normalized earnings before interest, taxation, depreciation and amortization (EBITDA) of CAD125 million by the end of 2016. Management expects the plan to generate CAD70 million of new earnings through a CAD0.01 per liter increase in profitability as well as CAD55 million through new acquisitions.

Parkland is focused on boosting fuel volumes to 7 billion liters by 2016 through organic growth and acquisitions, as it builds economies of scale, establishes better supply options and operates more efficiently.

The company has acquired CAD27 million of annualized EBITDA, identified CAD7 million in acquisition synergies and realized CAD11 million of savings since implementing the plan in May 2012.

Parkland stock traded at an all-time high above CAD20 on the Toronto Stock Exchange (TSX) as recently as mid-February. But it took a big hit after management reported fourth-quarter and full-year 2012 results on Feb. 26 and has since drifted to a 2013 closing low of CAD15.81 on April 23.

That’s despite the fact that actual numbers were in line with management’s monthly updates leading to the quarterly and annual reports. And that’s despite the fact that management boosted the fuel distributor’s dividend for the first time since it converted from an income trust to a corporation in January 2011.

Like Dundee’s, Parkland’s new monthly dividend rate is only modestly higher, at CAD0.0867 versus CAD0.085. That’s a mere 2 percent, and the annual rate is now CAD1.04 versus CAD1.02. But it reflects management’s confidence in its ability to execute on the Parkland Penny Plan.

Management reported an 80 million liter increase in fuel volume during the fourth quarter of 2012. Parkland added 109.7 million liters with the acquisition of Cango in the second quarter of 2011, but this was partially offset by lower commercial volumes, including home heat.

On the efficiencies front, despite the fact that distributable cash flow and volumes were lower for the fourth quarter, there was good news out of the Feb. 26 report. Operating costs were down 11 percent in the fourth quarter versus the year-ago period.

And marketing, general and administrative costs were trimmed by 3 percent, and finance costs were slashed by 60 percent. That pushed average gross profit for commercial fuels up 21 percent and profit for retail up 6 percent.

Efficiencies helped mitigate lower volumes, as full-year cash flow grew 32 percent on a 7 percent decline in operating costs for the year.

Greater scale will be achieved through the acquisition of Elbow River Marketing, which boosts the company’s presence in the increasingly prominent energy-by-rail movement, from AvenEx Energy Corp (TSX: AVF, OTC: AVNDF). Management anticipates that Elbow River will add CAD20 million of annual EBITDA.

It also enhances Parkland’s ability to take advantage of North American supply and demand imbalances and extends relationships with refiners, fuel suppliers customers.

Parkland also opened the Bowden Terminal during 2012, with a storage capacity of 35 million liters, or 220,000 barrels. This project was completed on time and within budget.

Management also reported strong refiners’ margins in the fourth quarter that helped establish record-high refiners’ margins for 2012.

Parkland used surplus cash flows reduce debt, as the net debt-to-cash flow ratio declined to 1.39-to-1 versus 2.26-to-1 a year ago. Cash flow coverage of debt interest has nearly doubled to a 7.56-to-1 margin. The company has a relatively modest debt maturity–less than 8 percent of market capitalization–on Nov. 30, 2014.

A key element of management’s May 8 first-quarter earnings release and follow-up conference call will be its report on progress replacing supplies from a contract with Sunoco Inc (TSX: SU, NYSE: SU) that expires in 2014. The company is working toward a solution that includes more than one, and preferably several, suppliers.

And Parkland will continue to face challenges as long as oil-price differentials remain at historically high levels, as reduced activity in the energy patch will have a knock-on effect on the company. But the spreads between Canadian crude and West Texas Intermediate and Brent have been narrowing in recent weeks, and Parkland’s greater scale has made it an even harder target.

But the recent selling certainly appears to be overdone, particularly in light of what were actually decent fourth-quarter and full-year 2012 results as well as the progress on the Parkland Penny Plan. The recent dividend increase, coupled with the depressed price, also leaves the stock with an ample yield of 6.3 percent.

Parkland Fuel is a buy under USD18 for aggressive investors.

For more information on Dundee REIT, go to How They Rate under Real Estate Trusts. Parkland Fuel is tracked under Gas/Propane. Click on their US symbols to see all previous writeups in Canadian Edge and Maple Leaf Memo. Click on the Toronto Stock Exchange (TSX) symbol to go to their Google Finance pages for a wealth of information, ranging from news releases to price charts. Click on their names to go directly to company websites.

Both are mid-sized companies. Dundee’s market capitalization comes in at around CAD3.9 billion, while Parkland Fuel’s is CAD1.1 billion. Both stocks have plenty of liquidity on both sides of the border, both in TSX and US-listed symbols. Dundee trades in the US over-the-counter (OTC) under the symbol DRETF. Parkland Fuel also trades on the US OTC market, under the symbol PKIUF.

Both companies have decent coverage on Bay Street and Wall Street. Dundee REIT has five analysts tracking it, with four rating the units a “buy” and one “hold” with no “sells.”

Parkland Fuel is viewed only slightly less bullishly at present, with five of the nine analysts tracking the stock rating it a “buy” versus four “holds” and zero “sell” recommendation.

As is the case with all stocks in the Canadian Edge coverage universe, you get the same ownership whether you buy in the US or Canada. These stocks are priced in and pay dividends in Canadian dollars. Appreciation in the loonie will raise dividends as well as the value of your shares.

Dividends paid by both companies are 100 percent qualified for US income tax purposes. Both stocks’ dividends are taxed at the now-permanent Bush-era rates of 5 percent to 15 percent for investors’ first USD450,000 a year of income for couples and USD400,000 for single filers. Above that the maximum tax rate is 20 percent.

Canadian investors enjoy favorable tax status for both companies. For US investors, dividends paid by Parkland Fuel into IRAs aren’t subject to 15 percent Canadian withholding tax, though they are withheld at a 15 percent rate if held outside of an IRA. Dundee is a REIT paying no corporate tax, so withholding tax may still apply to IRAs.

Dividend taxes withheld from US non-IRA accounts can be recovered as a credit by filing a Form 1116 with your US income taxes. The amount of recovery allowed per year depends on your own tax situation.