Canadian REIT is widely regarded as one the country’s best-managed real estate investment trusts.Lim Yong Hian
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Once upon a time, real estate investment trusts were one of Canada's hottest investments. Then, in 2013, investors abandoned them en masse. This year, they're back — the TSX/S&P REIT Index is up 16.3%, including distributions. But no one knows whether to trust the rally.
2010 to May, 2013:
The argument, in retrospect, was too simple: After the feds banned income trusts in 2006, investors went searching for sizable yields and piled into REITs. Their market prices soared, helping them fund property purchases — so they acquired like crazy. By early 2013, the sector had returned an average of 21% annually, including distributions, over the previous three years. Growth seemed endless.
May, 2013, through 2015:
The sector went haywire in 2013, when U.S. investors started freaking about the potential for interest rate hikes south of the border. Because so many investors bought REITs for their yields, there was sudden panic that other safe investments, such as government bonds, would start to look attractive again. With the market so frothy, it didn't take much to pop the bubble, so the sell-off was fierce.
January, 2016, to present:
Investors have realized they overreacted, and REITs are roaring back (though they're still a ways from their 2013 peak). Canada's economy is barely growing, and Alberta is a mess, but the wheels haven't fallen off. That has prompted rapid buying. The question now: Will another U.S. rate hike kill the rally? That very fear is what caused the correction in the first place.
Tim Kiladze