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Discussion Starter #1
Hello Everyone,

I wouls like to know what experienced think about Canadian REITS. I have few questions regarding them.

1. are they good long term investments (esp. Considering Dividend)?
2. Which industry REITS are better to hold for long term, residential, real estate, commericals etc. ?
3. Any thoughts on RIOCAN?
4. Any good suggestion ?
5. A lot of people talking about REITS these days, is it a correct time to invest in them ?

Cheers,
DD
 

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REITs issue 'distributions', not dividends. The distributions can contain several types of income from Other Income to Cap Gains to Return of Capital, etc.

Current market prices of REITs as measured against NAV (or discount to NAV), distribution yield, and where current prices sit relative to 52 week lows and 52 week highs, reflect what is popular and what is not. Industrial REITs are expensive, and to a lesser extent residential REITs. Some retail REITs have been hammered such as RioCan but may be oversold at current levels (some are saying RioCan is priced almost 30% discount to NAV) which would be extraordinary. Recreational and hotel REITs have been hammered for good reason. Some may go bankrupt with huge business losses.

Only you can decide what you are looking for, for what reason, and whether short term or long term, but always buy at a discount to NAV. Why might you ask? Because NAV calculations are rather opaque and subjective. Property appraisals are not done frequently and there is no certainty to their accuracy since they cannot be tested in the markets every day like stocks. So there is always a 'safety' cushion that investors will attach to share value.

Disclosure: I have owned RioCan for a very long time and continue to hold. It has done quite a bit in recent years to get rid of its secondary assets and consolidating in 6 key markets. It is also re-developing many of its strip malls in key urban (prime real estate) locations to multi-purpose residential/commercial/retail complexes. It will be a 10-20 year process but should result in extracting a ton of new value out of asphalt parking lots in strip malls. Time will tell.

I tend to not follow the crowd (herd mentality) into momentum if prices are nosebleed. That said, I did very well owning Pure Industrial REIT until it got taken out and taken private. A 2-3 bagger in a relatively short period. Not many home runs quite like that. If I was going to go into real estate now, it probably would be through Brookfield. They still are the gold standard for a long term hold.
 

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I would say this is the time to invest in REITs as it is on sale now. I have been using DRIP to get shares of ZRE every month as I don't need the money for the next 15-20 years.
 

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I agree. Have added to the major index areas when they were on sale ( they aren't as much any more ie S&P 500 ETFs) and REITs and Utilities/Infra have the best discounts now. Still down ~ 16% ytd
 

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Myself, I think REITs are in for a lot of pain. These are leveraged financial entities (like banks) and we are possibly heading into a very bad environment for real estate and commercial property.

In the last bull market (2009-2020) Canadian REITs performed incredibly strongly, XRE had roughly 13.8% CAGR growth which is condiderably higher than the TSX. They did well because they were leveraged during a credit & real estate boom period.

Of course this is completely speculative -- as with any sector specific bet -- but I think this is a bad time to get into them. I don't think the conditions of 2009-2019 continue any more and market themes do tend to last about ~ 10 years, roughly speaking. I think it's over.

I wouldn't be surprised if REITs turn out to be one of the worst, chronically underperforming sectors going forward. Already in the recent stimulus driven rally, REITs have underperformed. This indicates that institutions are selling them into the strength.

I would agree that if you really want to invest in REITs, it's best to use an ETF.
 

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The REIT market isn't homogeneous. I think there will be wide divergence in performance between REIT sectors.
I agree, and even among sub sectors, or tenants.

I've got lots of ideas, but I'm not even sure how to evaluate the REIT market in Canada.

I wouldn't want to touch conventional residential right now. It seems like governments are intent on screwing over landowners in favour of tenants.
 

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I'd probably wait a month or two on residential to be sure occupancy rates and delinquency rates didn't take a material turn for the worse. So far though, there has been little indication of that.
 

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I bought Brookfield Property partners in January after Dream Global REIT (DRG.UN) got taken out. At the time it was a bit of a contrarian play in that commercial was not the place to be but I was ready to sit on it for the next decade or more as it readjusted its properties either through sale or redevelopment. I spent the remainder of my DRG money on Brookfield Infrastructure at the end of April. I have a feeling once the CERB and CEWS curtails the fed will still need to create jobs. Perhaps some of this will be achieved through infrastructure spending as we have already seen a bit of money thrown towards infrastructure. I wanted to gain exposure to residential and Industrial for the past few years but never seemed to have the right bid in at the right time. Another sector to look at may be senior living. They may be facing some headwinds but if demographics have the impact that have followed boomers their entire lives this may be the place to be at some point.

The posts above do a great job in answering your questions 1-7 in which the answer is depending on how long and which ones it is definitely maybe a good time to invest. I apologize if I am being a bit facetious but it really depends on what your plan and current weighting to give you a better answer. If you don't have any REITs it may be something to consider adding at some point in time.

Cheers
 

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It looks like REITS are undervalued and the threats of lost rent and work from home are overblown. Comments from the G&M on 2 REITs

Domestic real estate companies are doing a remarkable job stickhandling the negative effects of the pandemic and government support initiatives.

CIBC’s report on RioCan REIT’s quarterly results was called “No rent left behind”,

“We believe [funds from operations] is set to rebound in subsequent quarters, given: 1) significant provisions for abatements and bad debts were recognized in the quarter (which account for further predicted abatements), implying that such charges should be more modest going forward; and 2) cash rent collected is trending decidedly upwards (85% to-date in July), with management suggesting that this metric could level off at 90%+ by the end of the year. While occupancy and leasing spreads could see further pressure through year-end, we believe the impact of such will prove to be modest in comparison. Consequently, we believe the units offer significant valuation optionality (38% discount to our NAV)”

“@SBarlow_ROB CM on Riocan: “No rent left behind”' – (research excerpt) Twitter


***

Separately, Allied Properties REIT CEO Michael Emory noted that “Every data point we’ve seen suggests the work from home theme is overblown” in a wide-reaching interview with BNN Bloomberg.
Mr. Emory specifically referenced Shopify Inc.

The company had previously announced plans to allow a large number of employees to work from home permanently, but Mr. Emory said that Shopify had reiterated its commitment to expansive new office space in Canada.


“Every data point we’ve seen suggests the WFH theme is overblown: Allied CEO” – BNN Bloomberg (video)
 

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I hold a small position with ZRE in a non-reg account. ZRE has neither increased nor decreased in value - yet it adds a nice little income to the income-based non-reg account (60/40) that I made for my wife. currently, the yield is around 5.4%. ZRE is doing exactly what I expected it to do. no glitter, no gold. just good, predictable monthly income.
 

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My ex has a relatively small (<10%) holding in ZRE as well to broaden her XIU et al holding. It will do just fine over her remaining 20 years or so.
 

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Here is another Globe article suggesting REITs are a good value
CIBC real estate analyst Dean Wilkinson is looking for a catch-up trade in domestic REITs in a Monday research report called “As The Sector Lags, The Relative Opportunity Widens,”

“While the broader S&P/TSX continues to rebound from its March lows (now down 4% year-to-date), the real estate recovery has effectively stalled (REITs have delivered a YTD -25% total return on an unweighted basis, with price levels largely unchanged from mid-April levels).

To this end, the ‘catch-up trade’ could prove to be significant. Indeed, given the above-average (and for the most part sustainable) yields and the embedded valuation optionality of most REITs under our coverage (we believe that there is, in totality, a rather large disconnect between underlying fundamentals and current prices), the REIT complex overall offers an attractive risk/reward for longer-term investors, in our view …

We continue to favour those REITs that carry relatively lower valuation risk, above-average yield, and strong balance sheets, including [Brookfield Property Partners LP, RioCan REIT, Smartcentres REIT, Automotive Properties REIT, Killam apartment REIT, Granite REIT, WPT Industrial REIT, Allied Properties REIT, and BSR REIT].”
 

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CMBS default rates are climbing... I would be careful buying a REIT that has commercial/office RE in it....

You could make the argument that an industrial REIT is going to recover nicely when the economy picks up and buy that, but commercial/office is going to be different - IMHO.....

Residential REITs are going to flounder for a while but people need to live somewhere...

I'd consider residential and industrial REITs...

Health care/ geriatric REITs are a no go right now as far as I can see... after COVID the govts could step in with a bunch of rules that squish profits...
 

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Well, I don't know much about REITs, but I've been watching this small cap (Inovalis REIT) and they are into European offices mostly in France and Germany and they seems to be doing pretty well with their current 10.40% dividend at 33% payout and a 5-year average yield of more than 8.50%.
 

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We presently own the following reits:
CAR. Mid market apartment buildings. Off about 5% from feb presently. Has done very well in the last 5 years though, and I have sold off to rebalance on the gains here.
KMP again down a bit. Mid market apartments and residential trailer parks.
SRU - bought in in July. Big box retail mostly, often anchored by grocery stores and shoppers drug mart, so those are pretty safe leases.
HR- down a bunch, since high rise commercial mostly, but I have put more money in, as I think it has been beat down more than it needs to be, and commercial has a reasonable cnace of being back in under 2 years.

Have enough in each position the REIT etf's adder did not materially help in our situation to consider buying thr wrap versus the reits of the sort we wanted to be mostly conservative in our reit holdings.
 

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I don't follow the sector very closely, but from what I gather, the rent impairments for office/industrial haven't been as bad as expected. Some things of course take time to develop and it is possible things could get worse over time.
 

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I don't follow the sector very closely, but from what I gather, the rent impairments for office/industrial haven't been as bad as expected. Some things of course take time to develop and it is possible things could get worse over time.
This is such a fascinating time. I really find this kind of uncertainty to be exciting and fun.

The future can play out many different ways. Perhaps government stimulus programs, or existing cash reserves, are helping individuals and businesses stay afloat only temporarily. Perhaps we are approaching the point of massive defaults, where everyone stops paying all debts, resulting in a total collapse of rentals. And then heavy loan losses at banks, banking crisis, likely a bail-in, equity wipeout, etc.

Or, perhaps businesses and individuals have adapted quite well, and are still solvent. Maybe all we get is some reduction in consumer spending, but rentals, real estate, and banks keep humming along without much problem.

Or, the virus may subside (for various reasons), business might bounce back strongly, and everything comes roaring back to life. And we end up 1 or 2 years from now with a stronger business environment than anyone is forecasting.

All of these seem plausible to me. I also find it interesting that the average forecast (which is likely what banks and REITs are pricing today) does not capture the fact that there's an enormous difference between worst case & best case. One outcome could be worse than the Great Depression, but the market prices don't reflect that. But that's just one possible outcome.

Good luck to all gamblers out there!
 

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The best performing REIT I have is NVU, and only because of the cash deal with Starlight and KingSett. When they cash me out, I think I might go to ZRE.

I've been trying to run an equal sector-weight dividend portfolio but have been chronically underweight on REITs since I have such a hard time choosing ones I want to own. I have a mixed bag, but nothing I really recommend specifically other than FCR. Currently:

AX.UN 6% ARTIS REIT T/U
FCR.UN 26% FIRST CAPITAL REIT
HR.UN 12% H&R REIT
NVU.UN 28% NORTHVIEW APARTMENT REIT
REI.UN 14% RIOCAN R/ESTATE INV T/U
BPY 15% BROOKFIELD PPTY PTNRS LPU

Except NVU, they are all underwater by 30% to my book.

I want to hold around 4 REITs and I originally eschewed ZRE or similar ETFs as (1) they inevitably contain some dross (2) there's not that many REITs worth owning in the first place and (3) the MERs are comparatively high. Now, I am not so sure. I recon once I get the NVU cash I will either sell AX and go equal weight on the remainders (FCR, HR, REI, BPY) or sell the lot and go to ZRE. I can use the capital loss to go back to last year, so that would ease the pain.
 

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Why not buy the top 5 or 10 holdings in ZRE...I dont think any of your current REITs are in there so you can harvest the gain and also avoid the high MER.
 
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