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Northern Property Real Estate Investment Trust

Monday's close: $30.85, up 20 cents

52-week trading range: $28.62 - $33.23 a unit

Annual dividend: $1.53 a unit for a yield of 5 per cent

Analysts' ratings: There were 3 buys, 6 holds and one sell, according to Bloomberg data. Target prices ranged from $30.50 to $36 a unit.

Recent history: Shares of the apartment operator in northern Canada have had a bumpy ride, but have returned 10 per cent this year, including reinvested distributions. Its units have drifted lower after peaking in February, partly amid profit-taking on concerns about the price run-up in the REIT sector. But investors were also concerned about how long Northern Property was taking to sell its retirement homes because they don't fit with its core business. It struck a deal in mid-year to sell the homes for $160-million to HealthLease Properties REIT. On Dec. 5, it said it would give unitholders some of the proceeds by way of a special distribution of 56 cents per unit or nearly $20-million. That payout goes to unitholders of record as of Dec. 17.

Outlook: The special payout has done little to attract attention to Northern Property because it was "overshadowed by $11-billion in announcements" in the REIT sector, said Derek Warren, a portfolio manager with Morguard Financial Corp. The news came the day when Loblaw Cos. proposed launching a REIT next year to hold its real estate valued at $7-billion, and a day after KingSett Capital's $4.4-billion hostile bid for Primaris Retail REIT.

"People didn't notice this little [Northern Property] gem sitting there undervalued," said Mr. Warren, who has owned the REIT for many years. "It's not exciting because it's apartment buildings are in northern Canada, but you have a great management team and great visibility of the cash flow…Our target is $33 to $35 a unit over 12 months."

Until early this year, Northern Property traded at a premium to many of its peers because its cash flow is so dependable, he said. "Their occupancy is very, very steady. They are very well managed financially. They have an excellent balance sheet, and a low payout ratio of 77 per cent versus the REIT average of 85 per cent."

Northern Property now trades at a discount to other apartment REITs at 15.4 times forward cash flow, he added. "In the REIT world, apartment operators trade from 18 times cash flow for Killam Property to nearly 24 times for Boardwalk REIT... If it had the same multiple as Killam over the next 12 months, you would make 20 per cent."

Investors may be too late for the special dividend, but "it's a great opportunity" if the stock pulls back, he said. He expects the REIT, still flush with cash, will increase its monthly distribution by the middle of next year.

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