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Lee Goldman

Senior vice-president and portfolio manager

CI Global Asset Management

Enzo Rodriguez/The Globe and Mail

Lee Goldman has managed real estate investment trust portfolios for over 15 years, and in that time the landscape has changed dramatically. REIT balance sheets are now stronger, while investments are not just confined to apartment, retail, office and industrial properties. Seniors’ housing, single-family homes, data centres, cellphone towers and self-storage facilities are all part of the REIT smorgasbord. Given their different fundamentals, that’s a plus for Goldman and co-managers Kate MacDonald and Chris Couprie, who oversee $1.7 billion in assets in the CI Canadian REIT and CI Global REIT funds. Over the long haul, the CI Canadian REIT ETF has outpaced the S&P/TSX Capped REIT Index. We asked the 54-year-old portfolio manager why he is bullish on industrial REITs and likes Chartwell Retirement Residences.

REITs have rebounded after a rough 2020, when retail and office space were particularly hard hit by the COVID-19 pandemic. What is your outlook?

We are positive because of the vaccine rollout, and the economy is on the right track to getting back to normal. The retail and office space sectors should improve, but some sub-sectors benefited from COVID. Industrial demand has been strong as e-commerce took off. U.S. single-family home rentals and manufactured-home communities also did well as some people moved from downtowns to suburbs for more space, or they became more affordable options as house prices rose. U.S. self-storage REITs were also an unlikely beneficiary due to people moving or storing stuff to get more space at home.

What REIT sub-sector are you most bullish on?

We think industrial REITs have the best fundamentals. With online shopping and demand for quicker delivery, companies need more warehouse space. During COVID, everything has been in short supply, so companies need a lot more inventory. People now use the phrase “just-in-case” instead of “just-in-time.” In Canada, the industrial vacancy rate is 2%, but it’s closer to 1% in the Greater Toronto Area, where rents are rising aggressively. In Canada, we like Summit Income, Granite and Dream Industrial REITs. One of our biggest holdings is U.S.-listed Prologis, which is the largest global industrial landlord.

What sub-sector are you bearish on?

We’re not crazy about the enclosed-mall business. It struggled before COVID and got really hurt during the pandemic. Those malls are usually fashion-oriented, but a lot of that business has gone online. Mall traffic has increased, but some of it is pent-up demand from not being able to shop. In Canada, we own more defensive retail-focused REITs, such as shopping centres anchored by grocery stores.

Which non-traditional Canadian REIT do you favour?

We like Chartwell Retirement Residences, which gets 90% of its business from retirement homes and 10% from long-term care. Both were hit hard by the pandemic. People could not move in, and Chartwell could not market the buildings. As restrictions loosen up, we think there will be a lot of pent-up demand. Longer term, it has a tailwind from demographics as the leading edge of the baby boomers will need some sort of retirement-living solution.

What about non-traditional foreign REITs?

Equinix, a U.S. data centre REIT, is a big holding. Increased data usage and companies migrating from having their own servers to using cloud servers will help increase demand for data centres. We also like cell tower REITs, such as American Tower, SBA Communications and Crown Castle International.

Are you expecting more takeovers among REITs?

Good quality real estate attracts a lot of players, including pension funds and private equity. With the latter, Blackstone Group and Brookfield Asset Management are very active. We think that Canadian-listed Summit Industrial Income, First Capital and BSR REIT, which owns apartments in the U.S. Sunbelt, could be future takeover targets.

What are headwinds for REITs?

If [yields on] 10-year bonds rise materially above 2%, that is a concern. But that is not our base case, and interest rates have come down from levels earlier this year. CI is in the camp that current inflationary pressures are more transitory than permanent. If there is a general rollover in equities, REITs are not immune, but they should be more defensive.

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