By Peter Ashton
May 14, 2019
In The Globe And Mail, Peter Ashton uses Strategy Builder to find Canadian real estate investment trusts with high yields, reasonable valuations and strong price performance.
What are we looking for?
Canadian real estate investment trusts with high yields, reasonable valuations and strong recent price performance.
Though traditionally a staple of conservative, income-seeking investors, Canadian REITs have put on a very strong performance so far in 2019 with the S&P/TSX Capped Real Estate Index up nearly 17 per cent year-to-date. Expectations of an interest-rate reversal by the Bank of Canada have put income-generating stocks such as utilities and REITs back on investors’ buy lists and have driven these two sectors sharply higher. For investors seeking conservative income-generating investments, are there still well-valued Canadian REITs to be found?
The screen
We will be using Trading Central Strategy Builder to search for Canadian REITs with high distribution yields, attractive valuation levels and a track record of recent unit price performance.
We will start by screening for Canadian REITs with a market capitalization of $1-billion or more. This will limit our search to approximately the top 40 per cent of REITs in the Canadian market. To find REITs with attractive income qualities, we will screen for distribution yields of 4 per cent or more. Many REITs have moved significantly higher since late December. To ensure we focus on REITs with reason-able valuations, we will filter based on price-to-book ratios of 1.25 or less.
To ensure we are focusing on REITs with recent price momentum, we will select only companies with year-to-date price performance of 8 per cent or better. This has the effect of limiting our results to the best performing half of the Canadian REIT universe.
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What did we find?
Dream Global REIT tops our list with a $2.7-billion market cap and 5.6-per-cent distribution yield. Dream Global owns a port-folio of commercial properties in Europe, primarily in Germany, Austria and the Netherlands. It performed well over the past five years and hit a record high in September, 2018. The units declined sharply between September and late December, losing approximately 24 per cent of their value. Expectations of slowing growth and more dovish central bank policy have caused the unit price to bounce sharply since late December, now up 19.3 per cent year-to-date. In spite of this bounce, the REIT units are still trading modestly below their book value.
The highest distribution yield on our list belongs to H&R REIT, one of Canada’s largest REITs with a market cap in excess of$6.7-billion. H&R owns a portfolio of commercial buildings in Ontario, Alberta and the United States. The economic downturn in Alberta caused a drag on the unit price over the past several years but the company seems to have shaken it off recently. The units hit a 52-week low in October and have since risen 24 per cent, including 13.7 per cent so far in 2019.
One of Canada’s largest REITs with a market cap in excess of $6.7-billion. H&R owns a portfolio of commercial buildings in Ontario, Alberta and the United States. The economic downturn in Alberta caused a drag on the unit price over the past several years but the company seems to have shaken it off recently. The units hit a 52-week low in October and have since risen 24 per cent, including 13.7 per cent so far in 2019.
