Morguard Financial Corp. portfolio manager Derek Warren.
Derek Warren is portfolio manager at Morguard Financial Corp. His focus is REITs.
Top picks:
Core: Calloway REIT (CWT-U.TO)
This large-cap retail REIT has Wal-Mart as a core tenant, which provides stability. It also has a value focus in its tenant base, which attracts shoppers in a tough economy. Add to this some solid development opportunities and a price that is at a discount to its peers and we see an opportunity. This stock started the new year very strong but has since pulled back creating a decent entry point.
Value: Boardwalk REIT (BEI-U.TO)
This Calgary apartment owner is under pressure due to concerns over low oil prices. The resultant price weakness is presenting an opportunity to buy one of Canada's finest REITs at a very reasonable price. Entry below $60 should provide solid long term returns.
Income: Pure Multi-Family REIT (RUF-U.TO)
With a strong 7.8% dividend, this is also a value play. Pure Multi-Family owns gorgeous garden style apartments in the sunbelt of the U.S., mostly in Dallas. Recent real estate transactions for competing properties have confirmed our view that this stock is very cheap, and we are happy to earn a juicy yield while we wait for investors or other property companies to see the value in Pure Multi-Family.
Past picks: April 29, 2014
Core: Chartwell Retirement Residences (CSH-U.TO)
Then: $10.39; Now: $12.46 +19.92%. Total return: +24.70%
Value: Brookfield Property Partners (BPY-U.TO)
Then: $21.19; Now: $30.60 +44.41%. Total return: +51.10%
Income: Pure Multi-Family REIT (RUF-U.V)
Then: $4.71; Now: $4.79 +1.70%. Total return: +8.72%
Total return average: +28.17%
Market outlook:
REITs have had great returns in the early part of 2015 as investors flocked to the discount valuations and attractive yields that real estate offers. The interest rate environment has remained very favorable for real estate, and REITs are using today's low lending rates to strengthen their balance sheets. The REIT holdings in the CIBC Canadian Real Estate Fund are well positioned with debt locked in for long terms, high-quality real estate portfolios, and safe dividends. We encourage a focus on high quality large cap REITs combined with a carefully selected group of high yield smaller cap REITs with strong real estate fundamentals. Retail will continue to be an exciting sector with upcoming news from Target and Hudson's Bay that will provide some challenges for weaker malls. We recommend focusing on high-quality operators and needs-based retail such as grocery store anchored strip centres. Industrial should continue to be strong after a weak 2014, however we are still underweight office. The apartment sector should have a solid year as occupancy is high and demand is strong. We like the demographic trends supporting the senior's housing sector, though we are keeping an eye out for excess supply. Keep an eye on Alberta as these REITs are being hit due to oil concerns and will likely provide a very good entry point some time this year.