Jeff Olin, president and CEO at Vision Capital
Focus: Real estate stocks

MARKET OUTLOOK

Across the broader markets, the mix of economic and political events throughout most of this year has caused confusion and uncertainty. Against this challenging backdrop, it is noteworthy that stock markets have been able to move higher thus far in 2019. Within the real estate sector, the strength of the unit/share prices of North American REITs and REOCs this year has narrowed the gap between unit/share prices and the underlying net asset values of many of these companies, with some even trading at a premium. While valuations have collectively risen, they’re not stretched for select sectors and companies due to favorable sector trends as well as increasing property values, which have been supported by a growing amount of private capital being raised for the sector. As a result, Vision anticipates there is further potential upside in select real estate equities over the next 12 months.

TOP PICKS

AMERICOLD REALTY TRUST (COLD:UN)

Americold is the world’s largest publicly traded REIT focused on the ownership, operation and development of temperature-controlled warehouses. The REIT’s high-quality facilities are “mission-critical” for its tenants as they are an integral component of their food infrastructure supply chain. Americold, with its experienced management team, has modernized the business model and developed best-in-class technology and operating platforms, providing for a significant competitive advantage.

The REIT is extremely well positioned to generate high levels of cash flow (funds from operations) growth over the coming years via organic growth as well as through accretive acquisitions and developments. Demand for its warehouse space is expected to trend higher as the population continues to grow, consumer preferences shift towards fresh foods that require temperature-control facilities and e-commerce penetration increases. The stock is very attractive, as it is currently trading at a similar 2020 FFO multiple to the U.S. industrial REIT sector but has significantly higher growth.

TRICON CAPITAL GROUP (TCN:CT)

Tricon Capital is the only Canadian-listed company that operates and manages high-quality residential real estate across North America, with a focus on single-family and multi-family rental buildings in both the U.S. Sunbelt and Toronto. The company’s principal strategy is to offer affordable upscale rentals in high-population growth markets to middle market consumers, who have historically offered landlords longer-tenure and therefore more stable cash flows than other segments of the rental market.

Strong supply and demand fundamentals in the U.S. Sunbelt have allowed Tricon to achieve consistent rent growth well above inflation and management’s excellent operational capabilities have controlled expenses below inflation. For the last 12 months, this combination has helped Tricon achieve same-property net operating income growth close to 10 per cent, which is nearly two-times higher than U.S. peers. Despite the robust outperformance, shares of Tricon trade at a 20 per cent discount to their net asset value, which offers a compelling entry point for investors as U.S. peers are currently trading at a 7 per cent premium.

BSR REIT (HOM-U:CT)

BSR is a unique Canadian-listed REIT that invests in U.S. multi-family apartments within Texas, Oklahoma, and Arkansas. The REIT’s principal strategy is to own and operate affordably-priced apartments within these strong population and job growth markets and selectively deploy value-add renovations that achieve high returns. Not only has management of BSR perfected this strategy over the last 20 years, but they also have a significant ownership stake in the company, resulting in the REIT having one of the most aligned and experienced management teams within the Canadian apartment sector.

BSR is incredibly well positioned to significantly grow its net asset value organically and through its value-add initiatives of upgrading rental units and opportunistic capital recycling. Additionally, BSR’s focus on affordable housing with very low average monthly rents provides a very compelling defensive characteristic should economic conditions deteriorate. Significant upside exists in the price of the REIT’s units as they are currently trading at a meaningful discount to its net asset value, whereas its U.S. peers are trading at an 8 per cent premium.

PAST PICKS: JULY 31, 2019

AMERICOLD REALTY TRUST (COLD:UN)

• Then: $33.53
• Now: $37.69
• Return: 12%
• Total return: 13%

CANADIAN APARTMENT REIT (CAR-U:CT)

• Then: $48.71
• Now: $55.43
• Return: 14%
• Total return: 15%

HOWARD HUGHES (HHC:UN)

• Then: $135.00
• Now: $110.10
• Return: -18%
• Total return: -18%

Total return average: 3%

FUND PROFILE

Vision Opportunity Fund Limited Partnership
Performance as of: Oct. 31, 2019

• 1 month: 1.9% fund, 0.36% index
• 1 year: 16.24% fund, 12.55% index
• 3 years: 9.48% fund, 7.91% index

INDEX: Equally weighted average of TSX Capped REIT Total Return Index, Scotiabank Canadian Hedge Fund Index, HFRI Index, and MSCI U.S. REIT Index.
Returns are based on net of fees and annualized.

TOP 5 HOLDINGS

1. BSR REIT
2. Tricon Capital Group
3. Canadian Apartment Properties REIT
4. Americold Realty Trust
5. Granite REIT

WEBSITE: visioncap.ca