Agellan Commercial Real Estate Investment Trust
Tuesday’s close: $9.84 a unit
Trading range since Jan. 25 initial public offering (IPO): $9.80 to $10.04 a share
Annual Distribution: 77.5 cents a unit for a yield of 7.9 per cent. This is the annualized yield based on the monthly distribution starting April 15.
Analysts’ ratings: none
Recent history: The Toronto-based REIT, which owns industrial, office and retail properties in the United States and Canada, still trades below its IPO price of $10 a unit. The cross-border REIT owns 23 properties (mostly in Ontario, Texas and the mid-western United States) that is being managed externally by Agellan Capital Partners Inc. The REIT’s prospectus notes that there will be a bigger push on acquiring properties in the United States during the medium term, partly because of attractive valuations. The largest single investor in the REIT is CarVal Investors LLC, a global investment fund manager with a nearly 20-per-cent interest. Agellan had planned its IPO late last year, but pulled it off the market in December amid competition from other REIT offerings. It will make its first cash distribution of 7.9 cents per unit (which covers a 35-day period) on March 15 to shareholders of record on Feb. 28. After that, the monthly distribution will be 6.5 cents per unit.
Manager insight: Agellan has several catalysts to push the REIT higher, but it is still under the radar of many investors because there is no analyst coverage yet, says Jean-François Tardif, a portfolio manager and founder of Timelo Investment Management Inc. There is a quiet period of 40 days when the underwriters are restricted from issuing any research reports. “There is no guarantee, but my expectation is that you will get some coverage,” and that will boost interest in the REIT, said Mr. Tardif who acquired most of his units during the IPO.
Agellan came out of the gate with a 7.75-per-cent yield, which has since become even more attractive, and it is among the highest among its Canadian real estate peers, he added. For instance, Dundee Industrial REIT is yielding 6.1 per cent; Pure Industrial REIT, almost 6 per cent and Cominar REIT, nearly 6.4 per cent.
The REIT’s cross-border focus is also attractive given the improving prospects for the U.S. economy that will help occupancy rates, he said. “I am more bullish on the United States [than on Canada]. Auto sales are improving very nicely. The housing sector is coming back. And manufacturing is coming to the United States so that is helping the economy.”
Agellan Capital Partners was the previous manager of the properties so “those guys are very experienced,” and can do acquisitions that will increase the value of the REIT, Mr. Tardif added. If that happens, the REIT could reach the $12-a-unit range over the next year, he suggested. “The main risk is interest rates rising... My personal belief is that interest rates are going to stay low longer than most people think.”
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