Derek Warren, Assistant Vice-President & Portfolio Manager at Lincluden Investment Management

Focus: REITs

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REIT MARKET OUTLOOK:

The REIT market has been very strong so far this year, for a number of reasons. The stocks were very cheap at the beginning of the year due to fears of rising rates at the end of last year. As this concern has been replaced by a “lower for longer” view of interest rates, investors and institutions alike are attracted to the stable yields of the real estate sector. The creation of a separate real estate GICs sector later this summer has also generated more interest from generalist funds that were previously underweight the sector.

We see the sector fairly valued on the whole, with large cap retail on the expensive side and small-cap diversified still offering value. Going forward we feel the sector will continue to benefit from increased attention and lower interest rates, however as the rally advances the chances of a pullback in price increases. New money at this point should focus on the mid-size REITs.
 

Top Picks:

Yield: H&R REIT (HR_U.TO)

Large cap REITs have been very strong this year; however H&R has lagged its peers due to mostly unfounded concerns regarding its properties in Alberta. The REIT has a 6 per cent fully covered dividend and a diversified portfolio with holdings across North America.

Growth: Crombie REIT (CRR_U.TO)

Crombie has lagged its retail peers for some time as the market doubted their ability to grow accretively.  Recent quarters have been very strong however, and we feel that the peer discount is far too wide. The yield is 5.75 per cent.

Value: Brookfield Property Partners (BPY_U.TO)

Brookfield’s global property investment arm came under pressure after the outcome of the Brexit vote as approximately 20 per cent of the company is London Office properties. We feel this could provide an opportunity as the company has strong long term leases in place, the full effect of the vote is not known, and the rest of the U.S. portfolio is performing well. The yield is 4.9 per cent.

 

Disclosure Personal Family Portfolio/Fund
 HR_u N  N  Y 
 CR_u N  N  Y 
 BPY_u N  N  Y 

 

Past Picks:  June 23, 2015

Smart REIT (SRU_U.TO)

  • Then: $29.62
  • Now: $38.69
  • Return: +30.62%
  • TR: +38.13%

Allied Properties REIT (AP_U.TO)

  • Then: $36.07
  • Now: $38.97
  • Return: +8.04%
  • TR: +13.18%

WP Glimcher (WPG.N)

  • Then: $13.81
  • Now: $11.88
  • Return: -14.01%
  • TR: -5.43%

Total Return Average: +15.29%

Disclosure Personal Family Portfolio/Fund
SRU_u N N Y
AP_u N N Y
WPG N N Y

 

Fund Profile

CIBC Canadian Real Estate Fund

Performance as of: July 6, 2016

1 month: Fund 4.6%, Index* 6.4%

1 year: Fund 12.8%, Index* 13.0%

3 year: Fund 9.7%, Index* 9.1%

* Index: S&P/TSX Capped REIT Index

* Identify if your fund’s returns are based on reinvested dividends. Returns provided must be net of fees!

Top Holdings:

  1. Canadian Apartment REIT – 6.9%
  2. Smart REIT – 6.6%
  3. H&R REIT – 6.5%
  4. RioCan REIT – 6.3%
  5. Brookfield Asset Management – 5.7%

Twitter: @derekoenophile           

Website: www.lincluden.com