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What are we looking for?

Canadian real estate equities that would appeal to an investor focused on safety and value.

The sector, which includes both corporations and real estate investment trusts, has considerably lagged the S&P/TSX Composite Index this year, and may present opportunities as a result. Many names offer good dividends or distributions and are backed by hard assets (the underlying real estate), while ultra-low interest rates provide a tailwind by lessening their interest burden.

The screen

My team member Allan Meyer and I started with Canadian-listed names with a market capitalization of $1-billion or more, sorted from largest to smallest. This is a safety factor as larger companies tend to have more diversified revenue streams, stability and liquidity.

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The sector is known for providing shareholders with a high level of income via their distributions if a trust, or dividends if a corporation. Yield is the projected annualized distribution or dividend divided by the share price.

When analyzing real estate, adjusted funds from operations (AFFO) is a key metric and often considered a more accurate predictor than earnings or cash-flow-based measures. It is the funds from operations with adjustments made for capital expenditures used to maintain the underlying real estate. Payout is the projected distribution or dividend divided by the AFFO. A lower number is preferred and may signal the ability for a future increase in distributions/dividends. Anything above 100 is a warning sign.

Debt-to-equity is a leverage ratio and safety measure. A smaller number is better.

Price-to-AFFO is the share price divided by the AFFO. It is a valuation metric; the lower the number, the better the value. We then looked at the occupancy rate – the percentage of rented spaces compared with available space. A higher number is better.

Lastly, we’ve included the 52-week total return to track performance and the average and median numbers for easy comparison.

What we found

RioCan REIT is the highest yielding name and scores well for safety and value. H&R REIT offers the best value and a nice yield. InterRent REIT boasts the lowest leverage but the priciest valuation. InterRent is also the lowest yielding REIT on our list; however, it does have a low payout, which could suggest future increases in the distribution. CT REIT and Granite REIT enjoy the best occupancy rate while Tricon Residential Inc. is the most leveraged.

Exchange-traded funds are an alternative for investors who like the sector but prefer to diversify away individual security risk. BMO Equal Weight REITs Index ETF (ZRE) and CI First Asset Canadian REIT ETF (RIT) are two such funds.

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Investors should contact an investment professional or conduct further research before buying any of the securities listed here.

Select TSX-listed real estate securities

NameTickerMkt. Cap. ($ Bil.)Div. Yld. (%)Payout (%)D/E (%)P/AFFOOccup. (%)52W Ttl. Rtn. (%)Recent Close ($)
Canadian Apt. Properties REITCAR-UN-T8.02.966.462.921.598.2-9.647.10
RioCan REITREI-UN-T4.99.392.986.310.097.2-37.115.48
Allied Properties REITAP-UN-T4.74.372.047.116.794.4-24.838.10
Granite REITGRT-UN-T4.53.771.248.119.099.128.478.42
First Capital REITFCR-UN-T3.06.278.9112.112.896.9-33.713.98
SmartCentres REITSRU-UN-T3.08.987.0113.69.798.1-29.520.74
H&R REITHR-UN-T3.06.750.1106.66.994.5-50.710.33
Tricon Residential Inc.TCN-T2.12.579.1266.824.794.115.211.01
NorthWest Hlthcare. Prop. REITNWH-UN-T2.16.889.2175.113.097.38.011.70
Killam Apartment REITKMP-UN-T1.83.867.398.517.894.8-9.517.90
Summit Industrial Income REITSMU-UN-T1.84.588.290.719.498.5-3.211.92
InterRent REITIIP-UN-T1.82.461.341.725.695.6-16.913.04
Dream Industrial REITDIR-UN-T1.76.294.248.015.195.8-5.411.22
CT REITCRT-UN-T1.55.768.7179.512.199.11.914.17
WPT Industrial REITWIR-UN-T1.55.786.8116.414.899.02.817.59
Boardwalk REITBEI-UN-T1.43.346.893.314.296.5-29.330.37
Cominar REITCUF-UN-T1.35.050.3123.48.491.7-38.97.15
Crombie REITCRR-UN-T1.26.795.4154.214.296.1-9.313.25
Artis REITAX-UN-T1.26.147.1111.47.791.5-24.78.83
Dream Office REITD-UN-T1.15.163.971.412.790.1-24.619.74
Average5.372.8107.414.895.9-14.5
Median5.471.6102.514.296.3-13.3

Source: Refinitiv Eikon & Wickham Investment Counsel Inc.

Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.

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