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What are we looking for?

Canadian real estate investment trusts with high yields, reasonable valuations and strong recent price performance.

Though traditionally a staple of conservative, income-seeking investors, Canadian REITs have put on a very strong performance so far in 2019 with the S&P/TSX Capped Real Estate Index up nearly 17 per cent year-to-date. Expectations of an interest rate reversal by the Bank of Canada have put income-generating stocks such as utilities and REITs back on investors’ buy lists and have driven these two sectors sharply higher. For investors seeking conservative income-generating investments, are there still well-valued Canadian REITs to be found?

The screen

We will be using Trading Central Strategy Builder to search for Canadian REITs with high distribution yields, attractive valuation levels and a track record of recent unit price performance.

We will start by screening for Canadian REITs with a market capitalization of $1-billion or more. This will limit our search to approximately the top 40 per cent of REITs in the Canadian market. To find REITs with attractive income qualities, we will screen for distribution yields of 4 per cent or more. Many REITs have moved significantly higher since late December. To ensure we focus on REITs with reasonable valuations, we will filter based on price-to-book ratios of 1.25 or less.

Finally, to ensure we are focusing on REITs with recent price momentum, we will select only companies with year-to-date price performance of 8 per cent or better. This has the effect of limiting our results to the best performing half of the Canadian REIT universe.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities.

What we found

Dream Global REIT tops our list with a $2.7-billion market cap and 5.6-per-cent distribution yield. Dream Global owns a portfolio of commercial properties in Europe, primarily in Germany, Austria and the Netherlands. It has performed well over the past five years and hit a record high in September, 2018. The units declined sharply between September and late December, losing approximately 24 per cent of their value. Expectations of slowing growth and more dovish central bank policy have caused the unit price to bounce sharply since late December, now up 19.3 per cent year-to-date. In spite of this bounce, the REIT units are still trading modestly below their book value.

The highest distribution yield on our list belongs to H&R REIT, one of Canada’s largest REITs with a market cap in excess of $6.7-billion. H&R owns a portfolio of commercial buildings located in Ontario, Alberta and the United States. The economic downturn in Alberta had caused a drag on the unit price over the past several years but the company seems to have shaken it off recently. The units hit a 52-week low in October and have since risen 24 per cent, including 13.7 per cent so far in 2019.

Canada’s largest REIT by market cap, RioCan REIT, also makes our list in the No. 6 position. RioCan units had been depressed since 2017 on concerns that their portfolio of traditional shopping malls was at risk as a result of the growth of online shopping. The company has rallied nicely in 2019 though, up 11 per cent year-to-date. The units also provide a very attractive distribution yield of 5.5 per cent and have a price-to-book ratio of just 1.05.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

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Select Canadian real estate investment trusts

RankCompanyTickerRecent Price ($)Market Cap. ($Mil)Distribution YieldP/B RatioPrice Performance (YTD)Price Performance (One Year)
1Dream Global REITDRG-UN-T14.202,7415.6%0.9619.3%2.7%
2H&R REITHR-UN-T23.476,7055.9%0.9313.7%12.8%
3Artis REITAX-UN-T11.091,6304.9%0.6920.0%-19.0%
4Choice Properties REITCHP-UN-T14.283,9735.2%1.1424.0%26.1%
5Northview Apartment REITNVU-UN-T28.661,8565.7%1.1317.1%10.1%
6Riocan REITREI-UN-T26.428,0615.5%1.0511.0%12.7%
7Granite REITGRT-UN-T63.762,9134.4%1.1719.8%27.0%
8Dream Office REITD-UN-T24.241,4394.1%0.968.7%3.6%

Source: Trading Central