Some Interesting Canadian Reits

Some Interesting Canadian Reits

TRICON CAPITAL (TCN TSX)

Tricon is a residential real estate firm largely focused on rental housing, primarily in the U.S. Sunbelt and Toronto and segmented into three verticals: Single-family rental (SFR) homes, multi-family rentals and for-sale housing. 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. The SFR sector is one of the few real estate asset classes to experience net demand growth amid COVID. The pandemic has caused households to begin leaving city centers, shifting demand towards suburban single-family homes. In addition, work-from-home is expected to further drive deurbanization and create demand for larger living spaces. As a result, Tricon has been able to increase occupancy to record highs approaching 98 per cent and achieve blended rental rate growth of 5.1 per cent in May. Despite record demand and accelerating fundamentals, shares of Tricon trade at a 21 per cent discount to consensus net asset value, which offers a compelling entry point for investors as U.S. peers are currently trading at an 8 per cent discount to their net asset values.

EUROPEAN RESIDENTIAL REIT (ERE/U TSXV)

European Residential REIT is the world’s only REIT focusing on multi-family apartments in the Netherlands, the third-most densely populated country in the world. The REIT currently owns and operates 5,632 residential suites across 131 properties in the country. It emerged in its current form when Canadian Apartment REIT sold a portfolio of 41 multi-residential properties located in the Netherlands and ERE took over its management and control. ERE offers unitholders first-mover advantage in consolidating the apartment sector in the Netherlands, where fundamentals are robust and no other institutional operator of size exists. CAPREIT identified this opportunity and decided it would be rewarding to sponsor ERE as a standalone vehicle with its own cost of capital and independently-focused investor base. Despite COVID-19, fundamentals in the REIT’s core markets remain largely unchanged, with ERES able to collect 100 per cent of rent, increase occupancy by 120 basis points as of April 30 and successfully send out renewal increases of 2.4 per cent. This compares to North American peers who have predominantly lost occupancy, collected below-historical average rents and have achieved flat net effective rent growth. Notwithstanding robust fundamentals, units of ERES remain a compelling investment, trading at a 14 per cent discount to their IFRS net asset value.

GRANITE REIT (GRT/U TSX)

Granite, the largest industrial REIT listed in Canada by market capitalization, owns a diverse portfolio of industrial properties across Canada, the U.S. and Europe. The REIT’s CEO, Kevan Gorrie, is an accomplished industrial real estate executive. Positive fundamental performance across Granite’s markets is expected to reaccelerate due to a rise in ecommerce, tenants increasing their inventory levels to meet demand, and slowing development starts, which limits the amount of new supply. In addition to benefitting from a fortress balance sheet, the REIT has been incredibly successful in significantly reducing exposure to its largest tenant over the past two and a half years. This improved Granite’s credit profile and contributed to further unit price appreciation. The REIT’s units are attractively valued, trading at a slight discount to NAV whereas its U.S. peers trade at a 9 per cent premium on average.

Source

Andrew Moffs, Senior Vice-President and Portfolio Manager at Vision Capital,

BNN-Bloomberg, June 25, 2020

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BSR REIT (HOM-U TSX)

BSR is a unique Canadian-listed REIT that invests in U.S. multi-family apartments within the U.S. Sunbelt states of 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 management also has a significant ownership stake in the REIT, resulting in BSR having one of the most aligned and experienced management teams within the Canadian-listed apartment sector.

Tricon Residential REIT (TCN TSX)

Tricon Residential Inc. 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. Sun Belt 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.

Canadian Apartment Properties REIT (CAR-U TSX)

Canada’s largest publicly-traded rental residential enterprise, it owns 59,000 residential rental suites and manufactured housing community sites. It also owns controlling stakes in two publicly-traded European apartment REITs focused on Ireland and the Netherlands, respectively. Notwithstanding the uncertainties generated by the pandemic, CAPREIT’s units are a compelling investment for several reasons. First, it possesses a strong balance sheet with $372 million of liquidity, a debt to gross book value of only 36 per cent, access to over a $770 million unencumbered asset pool and minimal near-term maturities. Second, it owns a defensive portfolio of apartment units with in-place rental rates that are 7 per cent below market and are affordable relative to other housing options. Third, recent transactions suggest that apartment valuations have increased during COVID-19.

Source

Andrew Moffs, Senior Vice-President and Portfolio Manager at Vision Capital,

BNN-Bloomberg, November 10, 2020

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CAPREIT (CAR-U TSX)

CAPREIT is the largest apartment landlord in Canada and its shares have suffered due to a rent freeze implemented by the Ontario government and concerns over demand from foreign students and occupancy. Nonetheless, CAPREIT's apartments remain one of the most affordable housing options in Toronto and Vancouver with rent controls placing CAPREIT's realized rents significantly below market. Even with the rent freeze, CAPREIT should still be able to realize double-digit rent increases on turnover. We believe that the secular immigration tailwind for Canada will continue after COVID is over and that CAPREIT's stock is a good long-term buy with a 2.75 per cent yield and trading below book value.

Source

David Baskin, President at Baskin Wealth Management,

BNN-Bloomberg, December 10, 2020