# What's up with REITs these days?



## Mookie (Feb 29, 2012)

I've enjoyed owning XRE for the last year or so - REITs in general have been doing very well, but over the last couple months REITs have really been sagging. Any thoughts as to why? Is now a good time to buy more, or is the party over in the REIT sector?


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## HaroldCrump (Jun 10, 2009)

IMHO, they are reaching the maximum multiple investors are willing to pay for the yield.
Purely from an accounting perspective, REITs are evaluated based on their AFFO, Cap Rate, etc. and I believe those metrics have peaked.
The only question was - what multiple are investors willing to pay for it.
And I believe we might be at that point.

Also, the constant empty threats from Mark Carney about rate increases might be spooking the markets as well.
In addition, some lingering fears of RE crash.

BTW, two of the largest players (RioCan and FCR) have announced new unit issuance today so both their stocks are down nearly 2% or more.
That could also be a reason why XRE is down today


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## davext (Apr 11, 2010)

HaroldCrump said:


> IMHO, they are reaching the maximum multiple investors are willing to pay for the yield.
> Purely from an accounting perspective, REITs are evaluated based on their AFFO, Cap Rate, etc. and I believe those metrics have peaked.
> The only question was - what multiple are investors willing to pay for it.
> And I believe we might be at that point.
> ...


If the other REITS also start issuing more units, it'll take some time before the stock price goes up again.


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## Cal (Jun 17, 2009)

HaroldCrump said:


> BTW, two of the largest players (RioCan and FCR) have announced new unit issuance today so both their stocks are down nearly 2% or more.
> That could also be a reason why XRE is down today


Thats what I was thinking.


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## doctrine (Sep 30, 2011)

Real estate companies are quite expensive. The only one I've bought into lately is BPO.

RIO and FCR both issue new equity on a regular basis. They sometimes drop but usually the effect goes away pretty quickly.


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## Belguy (May 24, 2010)

Hot times are over for Canadian REIT's:

http://www.theglobeandmail.com/glob...it-runup-is-over-says-analyst/article4579299/


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## bettyboop (Dec 13, 2011)

Belguy said:


> Hot times are over for Canadian REIT's:
> 
> http://www.theglobeandmail.com/glob...it-runup-is-over-says-analyst/article4579299/



Not necessarily, I bought one today  8.1 % yield HLP.UN


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## HaroldCrump (Jun 10, 2009)

Yield is not the same as returns.
The article Belguy posted is talking about total returns.
You are quoting the yield on a particular stock.


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## Spidey (May 11, 2009)

Depends on one's definition of "really sagging". No stock moves continuously upward in a straight line. I'm still happy to hold onto my REITs.


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## Sherlock (Apr 18, 2010)

If there's a housing correction, residential REITs such as CAR are likely to do very well as more people choose to rent.


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## bettyboop (Dec 13, 2011)

HaroldCrump said:


> Yield is not the same as returns.
> The article Belguy posted is talking about total returns.
> You are quoting the yield on a particular stock.



my apologies, I didn't click on the link as I assumed it was simply more doom and gloom from Belguy


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## blin10 (Jun 27, 2011)

_"Not necessarily, I bought one today 8.1 % yield HLP.UN "_

hmm, I usually don't buy stuff with no previous price history but rolled the dice and got in as well ... good luck to us lol


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## bettyboop (Dec 13, 2011)

blin10 said:


> _"Not necessarily, I bought one today 8.1 % yield HLP.UN "_
> 
> hmm, I usually don't buy stuff with no previous price history but rolled the dice and got in as well ... good luck to us lol


 
I bought it because it was a Jean-François Tardif holding, he's quite good but keep an eye on it.


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## Mall Guy (Sep 14, 2011)

Mookie said:


> . . . REITs in general have been doing very well, but over the last couple months REITs have really been sagging . . .


Not sure I agree with the OP's thesis . . . a number of REITs have been hitting 52 week highs . . . XRE is at $17.11 vs a 52 week range of $16.74 - $17.97 . . . closed at $15.57 on January 3, 2012 . . . they have all been issuing equity lately, which is a drag on earnings if they can't deploy fast enough, but the amount of product on the market right now is unbelievable !


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## HaroldCrump (Jun 10, 2009)

Two new REITs IPO'ed this week - Dundee Industrial (a spin-off from Dundee) and Middlefield Global Real Estate.
Last month Pure Multi-Family and Morguard North American REITs launched.

If you follow the REIT IPOs since 2010, it sure feels like 1999 with the dotcom IPOs.


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## namelessone (Sep 28, 2012)

*sk8ynd*

Valuation for REIT is at historical high because of low interest rate environment. Once the rate starts to go up, the REIT price will go down.


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## Mookie (Feb 29, 2012)

Still holding onto XRE, but not enjoying the ride the last couple months. I bought more to bring down my average cost, but obviously should have waited longer as it's still going down.


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## HaroldCrump (Jun 10, 2009)

Yep, there is increasing talk of RE correction.
Also, Mark Carney has been jumping up and down threatening interest rate increases next year.
Add in the fact that since QE-III, it is "risk on" again.
Therefore, money has been moving out of yield into risk.


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## My Own Advisor (Sep 24, 2012)

Spidey said:


> Depends on one's definition of "really sagging". No stock moves continuously upward in a straight line. I'm still happy to hold onto my REITs.


I with Spidey!


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## Eder (Feb 16, 2011)

I think a hike to interest rates has been put on the back burner for another year...


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## Belguy (May 24, 2010)

This article on REIT ETF's from the Globe and Mail may be of interest to some:

http://www.theglobeandmail.com/globe-investor/investor-education/article4840912.ece


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## leviathan (Oct 30, 2012)

*REITs*

Does anyone park any cash in REITs? 

Boardwalk REIT (BEI.UN)
Dividend Yield: 3.40%
Dividend 5 Yr Growth Rate: 7.39%
Payout % (FFO): 67.50%
Payout % (AFFO): 76.2%
Debt-to-GBV (Gross Book Value): 46.3%


Riocan REIT (REI.UN)
Dividend Yield: 5.20%
Dividend 5 Yr Growth Rate: 1.64%
Payout % (FFO): 93.20%
Payout % (AFFO): 104.50%
Total Debt to Assets: 47.80%


http://www.thedividendguyblog.com/2012/01/23/4-top-canadian-reits-for-2012/


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## jamesbe (May 8, 2010)

I've done quite well with Dundee I've got about 10k with them.

D.UN 6.2% yield at current price.

But I wouldn't buy now, too high.


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## HaroldCrump (Jun 10, 2009)

There are several threads on REITs.
Perhaps the mods can move this post into one of those.

And yes +1 for Dundee.
They now have two specialized spin-offs as well - Dundee International (DI.UN) and Dundee Industrial (DIR.UN)


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## HaroldCrump (Jun 10, 2009)

They are coming fast and furious now.
Just in the last few weeks, following new and existing REITs have issued new units:

Dundee Industrial 
NorthWest International Healthcare 
Crombie 
Allied Properties 
Pure Industrial 
Dundee International 
Canadian Apartment Properties 
Atrium 
Killam Properties 
HR 
North American REIT 
Primaris 
Retrocom Mid Market 
Morguard 
Pure Multi Family 
Dundee Industrial 
Extendicare Inc 
RioCan 
First Capital 
Brookfield Office Properties 
Morguard North American Residential 
Partners 
Cominar 
Allied Properties 
First Capital Realty 

By Jove, I don't think there is any Canadian listed REIT that has _not_ issued new units in the last 6 weeks :rolleyes2:


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## andrewf (Mar 1, 2010)

So, the REITs think they are 'fully valued' and are taking advantage to raise some capital at attractive prices?


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> So, the REITs think they are 'fully valued' and are taking advantage to raise some capital at attractive prices?


Yeah, I think that is the case.
Cap rates are very low these days, and getting worse.
I don't know why the REITs are acquiring properties at these valuations, maybe because the cap rates are still at or slightly above than 10 year bond yields.

Surely there isn't enough economic activity going on (given our GDP numbers) to indicate that there is a boom in office space or industrial space construction.
There is some activity in the retail space, mainly due to more US retailers venturing up here.

This flurry of new issues makes me wonder if this is some sort of market top in this space.


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## CanadianCapitalist (Mar 31, 2009)

andrewf said:


> So, the REITs think they are 'fully valued' and are taking advantage to raise some capital at attractive prices?


TD Securities estimate of NAV is pretty close to market price for the REIT universe. That suggests fair valuation. That doesn't mean they can't go up from here because REITs have traded at premiums to NAV estimates in the past.


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## Mall Guy (Sep 14, 2011)

HaroldCrump said:


> Cap rates are very low these days, and getting worse.
> I don't know why the REITs are acquiring properties at these valuations, maybe because the cap rates are still at or slightly above than 10 year bond yields.


Yes, cap rates are at a historic low, but so are interest rates. The deals are accretive from the get go. REITs and RECOs buy on the spread between GOC Bonds + 1.75-2.50 bps. So they are borrowing mid to long term at a 3.0 - 4.0% interest rates. Floating debt is even cheaper. The equity is actually more expensive (ie the 5-6% +/- yield). Their WACC (weighted average cost of capital) still gives them the same spread (+/-) they got when cap rates were 8%. They are also generally not leveraged like the old days. More likely to be in the 50% +/- range than the 75% range. And size is one way to lower your cost of capital, that is to say, most of the big names have a lower cost of capital than the smaller fringe players.

In 1998 the spread was 386 bps between 10 year bonds and the average national cap rate. Now it's around 450 bps. That's why they are buying. To be successful, they must buy right, finance right, operated well, and sell right. Simple, except for the stuff in the middle! 

And they are buying, because quality, once in a generation properties are coming on the market, with seller attracted by the low cap rate environment.


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## namelessone (Sep 28, 2012)

REIT pays out most of their earnings and most don't increase their dividend. For those that do increase dividend, the increase is 2~3%. 
The REIT yield is so low and no room to increase. In current environment, it's as dangeous as long term bond.


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## doctrine (Sep 30, 2011)

BPO is one of my favorite, and no they haven't issued any new capital recently. They did issue preferred shares, but that is really debt and not new equity. In fact they have an issuer bid out on their common shares. Although their yield is low at 3.5%, they also only pay out 50% and so are one of my favorite at current valuations.


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## Mall Guy (Sep 14, 2011)

namelessone said:


> REIT pays out most of their earnings


That is the general idea behind any income trust . . . 



namelessone said:


> and most don't increase their dividend. For those that do increase dividend, the increase is 2~3%.


that's pretty normal for most dividend paying stocks . . .



namelessone said:


> The REIT yield is so low and no room to increase. In current environment, it's as dangeous as long term bond.


Not sure why you think there is no room to increase, landlords are often able to raise rents and increase FFO and AFFO. Where are you getting a long term bond with a 5-6% yield . . . backed by a tangible, old school asset, not intellectual property or the next best thing!


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## zylon (Oct 27, 2010)

*Primaris Retail Real Estate Investment Trust (PMZ.UN)*



> Kingsett Group plans to offer to buy Primaris REIT (PMZ.UN) for $26 per unit ($23.04 y'd). $4 billion deal.


- via Twitter @5iresearchdotca


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## zylon (Oct 27, 2010)

H&R Enters Definitive Agreement to Acquire Primaris for Premium Value to Hostile Bid

"Unitholders of Primaris will be entitled to elect to receive 1.13 stapled units of H&R or *$28.00 cash per unit*, subject to a maximum cash amount of $700 million."

http://tmx.quotemedia.com/article.php?newsid=57300556&qm_symbol=HR.UN










http://stockcharts.com/freecharts/candleglance.html?PMZ/UN.TO,HR/UN.TO|C


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## gibor365 (Apr 1, 2011)

I hold some PMZ for over 2 years , bought at $21... looks like $28 is better (if I get this offer) , as 1.13 of HR only 26.88


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