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NUMBER CRUNCHER

Middefield REIT fund seeks out smaller caps Add to ...

What are we looking for?

What the pros are buying for their funds.

Checking out their top holdings is a good way to get stock ideas or to research a fund. Today, we look at Middlefield ActiveIndex REIT at www.middlefield.com.

More about the fund

The $16-million real estate equity fund has been managed by Andy Nasr of Middlefield Capital Corp. since mid-2011.

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The fund gained 18.8 per cent for the year ended Dec. 31 versus 15.2 per cent for the S&P/TSX Capped Real Estate Index.

The fund’s strategy is to invest half of its assets in names within the REIT index, and the balance (the actively managed portion) in “our best ideas not just in Canada but globally,” he said. Because of the fund’s relatively small size, he is able to be nimble in finding smaller-cap names that he expects can deliver better returns.

Among REITs and real estate operating companies, he is more upbeat on industrial properties than the retail and office sectors.

With occupancy rates still in the low 90-per-cent range “you haven’t seen [the industrial sector] recover because it typically ... lags an economic recovery,” he said. While the sector has done well in Western Canada because of the demand for resources, it has not picked up yet in the eastern part of the country. When it does, “that will cause rents to move up pretty significantly,” he added.

What did we find?

Shares of an Ontario apartment operator with a stellar 61.3-per-cent gain over a year.

InterRent REIT, one of the top holdings in the actively managed part of the fund, still has room for more gains, Mr. Nasr said. Its shares have been driven by its strategy of making significant improvements to its apartment properties so that InterRent can charge higher rents, he said. His one-year target is $6.50 a share.

He is a fan of Summit Industrial Income REIT, noting it has the same management team that ran the former Summit REIT that was sold to ING Group in 2006. Summit Industrial now aims to consolidate the fragmented industrial market, and its units trade at a discount to peers, he said. His target price is $8 a unit.

Shares of Brookfield Office Properties have struggled amid uncertainty over who will fill the huge space in its World Financial Center property being vacated by Merrill Lynch.

Brookfield is in talks to lease half of that space. Once it rents out the rest of the New York property, its shares should trade closer to its net asset value of about $21 a share, he added.

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Top Holdings of Middlefield ActiveIndex REIT at Dec. 31, 2012

Company Symbol 52-wk
high $
52-wk
low $
Top 5 Index names
RioCan Real Estate Investment REI.UN-T 29.2 25.72
H&R Real Estate Invest. Trust HR.UN-T 26.29 22.85
Calloway REIT CWT.UN-T 31.25 26.18
Cdn. Real Estate Investment REF.UN-T 45.5 36.55
Dundee REIT D.UN-T 39.74 33.89
Top 5 Active Names
Brookfield Office Properties BPO-T 18.48 15.21
Amica Mature Lifestyles ACC-T 10.01 8.5

*Formerly Proventure Income Fund. It began trading as Summit Industrial Income REIT in October, 2012. Source: Lipper

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