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It seems like nothing can stop Canadian real estate investment trusts from buying these days, with Whiterock REIT the latest to scoop up properties in Mississauga and London, Ontario. While the deal flow keeps the market on its toes, the big picture raises some questions. Chiefly, could the purchasers be over zealous?

To date, the deals haven't sounded any alarms. The properties sold have typically been part of high-class portfolios, and the REITs have easily raised cash to fund the purchases. But some warning signs are starting to show. For instance, private equity firm Blackstone announced it is shopping its $900-million Canadian property portfolio, and almost everyone has agreed its perfect timing for Blackstone because the market here is so hot. Flip that equation around, however, and a good price for Blackstone is expensive for the REITs.

Moreover, because so many REITs are desperate to buy, property prices jump higher.

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So far REIT investors haven't minded. Yet they may not be the best measurers of success. REITs are largely held by retail investors who would do anything for yield now that corporate income trusts have been wiped out. Because these investors are so keen to throw their money into REITs, the companies continue to raise new cash to buy properties that boost their cash flows, ensuring they can keep their distributions in tact. If a market downturn hits, there could be trouble, because distributions now have to be paid on all the new shares issued.

Whiterock REIT was the latest to strike a deal, acquiring two properties in Ontario with the help of Return of Innovation Capital Ltd. The new buildings were bought for $218-million and add rentable area of 1.2 million square feet. Just two weeks ago, Whiterock raised $75-million of new equity to fund new purchases.

The purchase comes on the heels of Primaris Retail REIT's latest acquisition, worth $572-million.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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