Lincluden Investment Management's Derek Warren.
Derek Warren is portfolio manager at Lincluden Investment Management. His focus is REITs.
Top Picks:
Core: Canadian Apartment Properties REIT (CAR_U.TO)
CAP REIT has pulled back 10 per cent recently, ever since their earnings call. While there was weakness in the Alberta portfolio, this is a small part of this Ontario-focused REIT. They have a great portfolio of apartments in Ontario, arguably the most stable market in Canada. Last purchased Aug. 19 at $30.91.
Value: Killam Apartment REIT (KMP_U.TO)
For some time, Killam has traded at a discount to its apartment REIT peers, notably due to its higher debt and Maritime focus. The balance sheet is now in better shape, and the Maritimes are holding up well, so we feel the discount should not apply to the extent that it has. Last purchased Aug. 15 at $12.88.
Yield: H&R REIT (HR_U.TO)
Looking at the top five REITs by size, H&R has the highest yield at 5.8 per cent. This gives you liquidity, reasonably quality, and a very safe dividend. While there are higher yielding REITs, this is a safe alternative. Last trimmed May 17 at $22.20 (took profits after buying at $19) , but still a large holding for the fund.
Past Picks: September 11, 2015
Core: Chartwell Retirement Residences (CSH_u.TO)
Then: $12.43 Now: $15.59 +25.42% Total return: +30.61%
Value: Plaza Retail REIT (PLZ_u.TO)
Then: $4.21 Now: $4.97 +18.05% Total return: +24.71%
Income: American Hotel Income Properties (HOT_u.TO)
Then: $9.98 Now: $11.13 +11.52% Total return: +21.35%
Total Return Average: +25.56%
Market outlook:
The REIT market has enjoyed a strong rally so for this year. We now see them trading near fair values. There is a lot of news flow facing REITs in September as the sector receives its own unique GICS classification. We welcome the increased attention this will bring to the sector and feel it will be a net benefit to investors.
In the long term, the macro environment as we see it does not support significantly higher interest rates, and as such we think quality real estate at attractive yields is an excellent investment. In the short term, there is a chance that the U.S. Federal Reserve may increase rates a small amount before the end of the year. In such a case that REITs sell off, we would recommend adding at that time. We remain positive on the sector, with a focus on quality locations and strong balance sheets.