Derek Warren is portfolio manager at Lincluden Investment Management. His focus is REITs.
Core: Chartwell Retirement Residences (CSH_u.TO)
This owner/operator of seniors' living residences is, in our view, the top operator of seniors' living homes in Canada. There has been significant M&A in this sector, each at a more exorbitant price, yet Chartwell is still below its highs. If a takeover does not occur you still own a top company in a growing sector.
Value: Plaza Retail REIT (PLZ_u.TO)
Plaza continues to execute within its area of core expertise which is the development (and redevelopment) of smaller grocery-anchored strips in secondary markets. Management is well aligned, and the company has a history of internally funded NAV growth and increasing dividends.
Income: American Hotel Income Properties (HOT_u.TO)
The U.S. hotel market is very hot, as can be expected in an improving economy, and American Hotel Income Properties (AHIP) participates in this strength while providing a 9% yield. AHIP owns a combination of fixed contract hotels for railway workers that provides an underlying support to income, along with a solid portfolio of limited service hotels that can benefit from the improving U.S. economy.
Past Picks: September 5, 2014
Core: Granite REIT (GRT_u.TO)
Then: $41.05 Now: $37.69 -8.19% Total return: -3.04%
Value: Pure Industrial REIT (AAR_u.TO)
Then: $4.60 Now: $4.43 -3.70% Total return: +2.90%
Yield: WPT Industrial REIT (WIR_u.TO)
Then: $10.10 Now: $12.00 +18.81% Total return: +26.28%
Total Return Average: +8.71
The North American REIT markets are trading at significant discounts to the net asset values of their properties, and are offering investors highly attractive yields. In Canada a combination of oil weakness and recession fears have caused a sell-off in Alberta focused and retail REITs, however in the midst of the broad sell-off we see investors reacting irrationally. There are now many high quality organizations offering what we feel to be highly attractive risk adjusted returns with sustainable yields – meaning you are paid to wait for the recovery. In the U.S. the correction seems motivated by external shocks that are providing investors the opportunity to buy into a strengthening economy and healthy property market. While caution is always warranted in times of market correction, we see quality real estate at steep historical discounts and attractive yields, leading us to recommend buying REITs.