Derek Warren is portfolio manager at Morguard Financial Corp. His focus is on Real Estate Investment Trusts.
Core: Calloway REIT (CWT.UN-T)
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. They recently announced the internalization of the development company SmartCentres, and the rebranding to Smart REIT. We think that this internal development team will add considerable value over the years.
Value: Boardwalk REIT (BEI.UN-T)
Boardwalk stock has been under pressure due to market fears regarding their Alberta portfolio and lower oil prices. While oil prices have rebounded, Boardwalk stock has not. The company put out very stable numbers this past quarter, and their guidance does not show any major weakness. The balance sheet is very strong, and the company is trading at a discount to the value of its properties.
Income: Pure Multi-Family REIT (RUF.UN-TSX-Ven)
This Canadian REIT owns garden-style apartments in the sunbelt of the U.S., particularly in Dallas, Phoenix, and now San Antonio. Pure Multi-Family has the strongest NOI growth in the REIT sector this quarter, however people overlook it due to its smaller size and U.S. assets. We think that 2015 could see big things for this small REIT. Yield is 7.3per cent.
Past Picks: June 17, 2014
Core: Pure Industrial REIT (AAR.UN-T)
Then: $4.71; Now: $4.90 +3.93%; Total return: +10.48%
Value: Plaza Retail REIT (PLZ.UN-T)
Then: $4.07; Now: $4.42 +8.60%; Total return: +14.61%
Income: WPT Industrial REIT (WIR.U-T)
Then: $10.15; Now: $11.25 +10.84%; Total return: +17.62%
Total return average: +14.24%
Canadian REITs are having a solid year so far in 2015. The strong balance sheets and attractive yields of REITs are attracting investors that are looking for income and stability in a volatile market. The existing interest rate environment remains attractive for real estate as borrowing costs are low. Despite continued low rates the Canadian REIT market remains reasonably priced. This is especially true when compared with U.S. REITs. Canadian REITs are trading at historically high discounts to their U.S. peers. This is logical considering the stronger economic growth in the U.S., however the U.S. REITs are now fully valued in our opinion and we feel Canada will outperform for the short term. The currency will be the wild card in this play. Within Canada the theme is east vs. west. Alberta-focused REITs such as Boardwalk have been the worst performers so far this year due to the decline in oil prices. We feel that this is overdone. Oil prices will remain volatile, and people in Calgary will still need apartments to live in. Recently Canadian REITs have come off in price and we see this as an opportunity.