Full episode: Market Call for Tuesday, July 9, 2019
Joshua Varghese, portfolio manager at Signature Global Asset Management, CI Investments
Focus: Global real estate stocks
As equity markets have picked back up, REITs have given up some of their early relative performance and, underperforming equities over the past two months. They’re still in solid, mid-double digit territory for year-to-date returns. The diversification benefits of REITs continue to exist, as they did an excellent job protecting capital during the month of May while equity markets sold off heavily.
We believe that the structurally lower rate environment should be here to stay, which bodes well for a sector that provides a visible cash flow profile. In this environment, many REITs can perform well regardless of important factors such as management quality, balance sheet quality and payout ratios. Our preference is to stick to the high-quality names that will benefit from macro tailwinds, but which can weather the storm should the macro environment change.
Americold is the only public REIT focused on temperature-controlled warehouses globally. This is a very niche business supported by structural tailwinds as food consumption continues to grow and the supply chain evolves. This asset class is in the early stages of institutionalizing, meaning we believe that pricing could get stronger for cold storage warehouses. The stock is pricing in good growth and we think momentum continues.
ALLIED PROPERTIES REIT (AP_u.TO)
Allied is an urban-focused REIT whose business is mainly in office and data centre properties. This REIT was the original creators of cool, creative environments before WeWork entered the market. Allied is one of the best capitalized REITs in the sector, it has a truly international and institutional type of balance sheet and management team and operates in markets with very healthy fundamentals.
GRANITE REIT (GRT_u.TO)
Granite is an industrial-focused REIT who has gone through significant management changes over the past several years. The previous management team left the company with a very strong balance sheet, which sets it up nicely for the new management team who just came in. It has global expertise and, in a low rate environment, it’s well positioned to deploy capital and see significant free cash flow per share growth.
PAST PICKS: APRIL 1, 2019
TRICON CAPITAL (TCN.TO)
- Then: $11.60
- Now: $10.15
- Return: -13%
- Total return: -12%
CUSHMAN & WAKEFIELD (CWK.N)
- Then: $18.02
- Now: $18.05
- Return: 0.2%
- Total return: 0.2%
DREAM OFFICE REIT (D_u.TO)
- Then: $24.95
- Now: $24.53
- Return: -2%
- Total return: -0.7%
Total return average: -4%