THE GLOBE AND MAIL
• THURSDAY, APRIL 14, 2011
GLOBE INVESTOR
•
B17
STOCK ANALYSIS
REIT sector still has strong foundations
...............................................................................................
~
What did we find?
Several REITsand REOCs that
met out criteria.
Jeff Roberts, author of the
Desjardins report, believes the
REIT sector as a whole is well
IAN McGUGAN
positioned for attractive returns
NUMBER CRUNCHER
[email protected]
'over the coming year. "Demand
for properties remains strong,"
he writes, noting that not only
othing says stability like
REITs, but institutions and pribricks and mortar. Perhaps
vate investors are now chasing
income-producing properties. '
that's why real estate investIn addition, mortgage rates
ment trust~ (REITs) an~ real escontinue to be low, financing
tate operating compames
conditions are solid, and funda(REOes) have enjoyed such
mentals are improving in most
good times over the past couple
of years as investors search for
Canadian' property markets.
dependable yields in an unpreCapitalization, or "cap," rates
dictable economy. But after the
are still declining but should
large gains, is it still possible to ' stabilize in the second half of.
find value in the sector? With
the year. (Cap rates measure
how much net operating inthe heJp of a recent report from
come a property throws off in
Desjardins Securities, we went
looking.
,
relation to its purchase price.)
....t.
.
That said, not all RElTs offer
What
are we leoking for? .
the same prospects. Mr. Roberts
is a strong believer in' assessing:
;- Canadian REITs or REOCsthat
real estate investments by looking at the gap between their
can appeal to value-oriented investors. More specifically,we went
stock market valuations and esin search of real, estate firms tradtimates of their NAV.He thinks
ing at significant discounts to
some REITs and'REOCs are now
their net asset v~lues (NAV).,
fully valued, or nearly so, while
~
.
others are trading below NAV.
The accompanying chart
shows premiums or, discounts to
NAVfor several REITs and RE- OCs. Mr. Roberts' top pick is
Mainstreet EqUIty, a Calgarybased fild-market apartment
owner, whIch trades at a 32"percen discount to NAV and has
strong prospects for growing its
cash flow. Another favourite is
Meleor Developments, an Alberta-based land developer that he
estimates is trading at a 38-percent discount to NAV.
Given Mr. Roberts; generally
positive outlook for the sector,
he also likes Some firms that
are trading at smaller discounts
or even premiums. Among
small- to medium-capitalization
players, he prefers Huntingdon,
Homburg, Killam and Retrocom.
Within the large-cap universe,
he likes Boardwalk, H&R, Allied,
Calloway, Cominar, Dundee and
RioCan.
Looking for value among Canadian ;REITs
Discount or premium to net a~set value
10.3%
8:6
N
I
-29.6
-31.9
..><:
v
0
~
2
:.c
:s:
C
C
ro
u
0
0::
ro
~
"is.. ~
:::>
ro
'0
u
ro
c
ro
u
.D
~ E
0
u:: :I:
THE GLOBE AND MAIL»
..><:
Iii
3:
'"CI
ro0
C!l
*
'"CI
c
':::>
Cl
ro 3:ro>~
'E ..Q E'
cXS E. 0 Iii ~ ~
~ :::c & u u :;z «
o
V>
";::
ro
V>
SOURCE: DESJARDINS SECURITIES
C
'"CI
..gc
E
V
en
e ~, ~
1U 8 :::>
~
Vl
Vl
C
:I:
"Qj
~
tii
·c
'(0
z:
IN DEPTH, ONLINE
See this and other Number
Crunchers online at
tgam.ca/cruncher
I