Unlike many of his peers, Charles Dillingham has an unusual perch on the real estate world.
The manager of the CIBC Canadian Real Estate Equity Fund works for the investment arm of Morguard Corp., which is involved in buying real estate. He also spent part of his earlier career overseeing pension funds that invested directly in the property market.
"Being part of the real estate industry, you get a feeling for the weather," quips Mr. Dillingham of Morguard Financial Corp. "We have identified really good companies or real estate investment trusts [REITs] like First Capital Realty, Killam Properties, Boardwalk and Simon Property Group. And we have tended to stay with them."
His $49-million real estate equity fund has won a three-year Lipper Award. It posted an average annual return of 15.4 per cent for the three years ending last Oct. 31, which includes the stock market turmoil of 2008 and 2009.
Mr. Dillingham first got his feet wet in the property world when he was director of the pension fund at former Consolidated Bathurst Inc. in the 1980s. "The board decided it wanted to get into real estate directly so I went and learned the game," he recalled.
While industry contacts have been helpful, "you still have to decide whether interest rates are going up or down," said the manager who has run his bank mutual fund since 1997. "And you still have to go and watch what is going on with management of the real estate companies."
Despite the 21-per-cent gain in REITs last year when the market was in the red, he is still positive on this sector, which he expects could return about 10 per cent this year.
"It looks like interest rates are going to stay low, fairly low," so that will drive demand for REITs, he said. "You are still getting 5 or 6 per cent, and sometimes higher yields on REITs … The U.S. economy is showing signs of improvement, and we think that can continue."
With the recent takeover of Canmarc REIT and Whiterock REIT by other peers, there is potential for other acquisitions that will also help support prices of their securities, he added. "I consider it highly likely that something else will be taken out this year – most likely one of the apartment REITs."