A Chartwell Seniors Housing REIT in Toronto. Investment in domestic real estate has exploded in recent years and the market capitalization of the iShares S&P/TSX Capped REIT ETF has increased tenfold since 2006.Fred Lum/The Globe and Mail
Corporate insiders are still very bullish on real estate investment trusts, but not at the heady levels of late spring and early summer when REIT prices were plunging amid a spike in long-term interest rates.
The REIT indicator tabulated at INK Research, which monitors the buying and selling of shares by officers and directors within their own businesses, currently stands at 650 per cent. That means there are over six REITs with key insider buying for every one with selling.
While interest is clearly strong in snapping up units in REITs, which remain well off 52-week highs, it's not nearly what was seen in early August, when the REIT indicator peaked at 1,600 per cent. At that point, there were 16 REITs with key insider buying for every one with selling.
Insiders have a tendency to be early in their actions, and this was on display this summer. The indicator reached its highest point a few weeks before the Aug. 30 year-to-date low in the REIT benchmark.
"REIT returns could be poised for above-average returns from this point on," Ted Dixon, CEO of INK Research, said in summing up the latest insider findings.
But investors thinking about following insiders into expanding their REIT exposure should know it's still a risky move right now. The U.S. Federal Reserve's decision last week to refrain from any tapering of its $85-billion in monthly bond purchases is favourable for income-producing securities such as REITs, since it has eased the downward pressure on bond prices. But comments from various Fed officials in recent days has left the door open to the start of the "tapering" process as early as next month, even while most market players think that's unlikely until December or later.
"If long-term rates do stabilize or even trend down, REITs could outperform insurers and banks which tend to do better when long-term rates are higher than short-term rates," notes Mr. Dixon. "REIT insiders seem be betting that most of the damage has already been done to their group and that chances are good for more upside over the next year."
The S&P/TSX capped REIT index is currently sitting near 150, up from around 145 in late August. But REIT prices are still nursing a lot of losses; in late May, the index was near 175.
Darcy Keith