Investing

Beaten down REITS

  • Last Updated:
  • Jan 3rd, 2023 1:54 pm
Tags:
[OP]
Deal Addict
May 18, 2015
1782 posts
810 upvotes
Ottawa,Ont

Beaten down REITS

Noticing a lot of REITs are 'beaten' down at the moment with rising interest rates and lower property values. Wondering if people have their eye on any in particular?

I am currently looking at Dream office.
29 replies
Member
Sep 12, 2008
208 posts
87 upvotes
Canada
This probably won't be helpful, but...I can't see the value in office/industrial REITs in the near and medium term. The trend is going to be more and more towards work from home, with exceptions/limitations, of course.

Business is going to slow greatly, if you read the tea leaves of the economy. Companies will be under pressure to both cut costs and go more green. One of the easier solutions to achieve both goals will be to rent less office/warehouse space.

Rising interest rates means when the REITs refi their mortgages, they may be paying a lot more interest on those properties.

Finally, REITs haven't had that much capital gains in the last few years, you mostly just get the monthly distribution. And for a 5 or 6 % yield, you can invest in other things with a lower risk profile. So, I just don't see it. What do others think?

Of course, I'm probably wrong, but that's my 2c worth.
[OP]
Deal Addict
May 18, 2015
1782 posts
810 upvotes
Ottawa,Ont
shplad wrote: This probably won't be helpful, but...I can't see the value in office/industrial REITs in the near and medium term. The trend is going to be more and more towards work from home, with exceptions/limitations, of course.

Business is going to slow greatly, if you read the tea leaves of the economy. Companies will be under pressure to both cut costs and go more green. One of the easier solutions to achieve both goals will be to rent less office/warehouse space.

Rising interest rates means when the REITs refi their mortgages, they may be paying a lot more interest on those properties.

Finally, REITs haven't had that much capital gains in the last few years, you mostly just get the monthly distribution. And for a 5 or 6 % yield, you can invest in other things with a lower risk profile. So, I just don't see it. What do others think?

Of course, I'm probably wrong, but that's my 2c worth.
I do agree with a lot of what you have said except for the warehouse space. I believe that will continue to expand and grow as society continues to move/prefer online shopping. The thing about office space is that downtown central locations will always be coveted.
Deal Addict
Mar 10, 2011
2513 posts
698 upvotes
Toronto
REITs have been on sale this year and I have topped up on many of them. Although some, like the poster above, is finding office REITs not currently favourable, there are plenty of Residential, Retail, Industrial, Healthcare and Diversified REITs out there as well.
Sr. Member
Mar 12, 2017
770 posts
739 upvotes
shplad wrote: This probably won't be helpful, but...I can't see the value in office/industrial REITs in the near and medium term. The trend is going to be more and more towards work from home, with exceptions/limitations, of course.

Business is going to slow greatly, if you read the tea leaves of the economy. Companies will be under pressure to both cut costs and go more green. One of the easier solutions to achieve both goals will be to rent less office/warehouse space.

Rising interest rates means when the REITs refi their mortgages, they may be paying a lot more interest on those properties.

Finally, REITs haven't had that much capital gains in the last few years, you mostly just get the monthly distribution. And for a 5 or 6 % yield, you can invest in other things with a lower risk profile. So, I just don't see it. What do others think?

Of course, I'm probably wrong, but that's my 2c worth.
It could already be priced in considering most people have the same opinion.

You can find 7% + on many REITs. Whether they're great investment is another matter. I own a bit of REITs in my dividend portfolio for diversification.
Last edited by leolozon on Dec 2nd, 2022 11:35 pm, edited 1 time in total.
Member
User avatar
Feb 12, 2016
295 posts
190 upvotes
nikels21 wrote: Noticing a lot of REITs are 'beaten' down at the moment with rising interest rates and lower property values. Wondering if people have their eye on any in particular?

I am currently looking at Dream office.
Dream REIT is a decent option and I have my eye on it. I'm looking at NWH.UN and will probably buy when the dividend hits 8%. CAR.UN is also another one on my radar.
Sr. Member
Oct 31, 2009
631 posts
144 upvotes
Sold most my REITs and only kept grocery anchored REITs at this time SRU.UN and SGR.UN.
Jr. Member
Jul 5, 2017
180 posts
133 upvotes
dealhawk1 wrote: Dream REIT is a decent option and I have my eye on it. I'm looking at NWH.UN and will probably buy when the dividend hits 8%. CAR.UN is also another one on my radar.
Also eying NWH, feels like $10 is a safe spot to start a position in it with its very juicy div yield.
Deal Fanatic
Sep 23, 2007
5431 posts
1737 upvotes
I think it depends on the REIT.

Take Smart Reit for example, they are commercial but their biggest client is Walmart. That sounds pretty safe to me. Rio is a mix bag of commercial and shopping spaces.

There is indeed a trend towards work from home but most employers maintain a hybrid policy (like 3 days in office, 2 days from home. These arrangements still requires the business to pay the full rent. Yes there are some companies going pure WFH but that's not the norm yet. Trends take time to happen. If you buy now, it's not like the next month everybody tries to cancel their lease.

Some REITs are not even focused on commercial office space. Some are into rental properties or warehousing spaces. I think every REIT is a little different and deserves its own discussion.

Personally I would probably buy REITs over utilities at the moment.
Deal Guru
Oct 7, 2010
13512 posts
4382 upvotes
BananaHunter wrote: I think it depends on the REIT.

Take Smart Reit for example, they are commercial but their biggest client is Walmart. That sounds pretty safe to me. Rio is a mix bag of commercial and shopping spaces.

There is indeed a trend towards work from home but most employers maintain a hybrid policy (like 3 days in office, 2 days from home. These arrangements still requires the business to pay the full rent. Yes there are some companies going pure WFH but that's not the norm yet. Trends take time to happen. If you buy now, it's not like the next month everybody tries to cancel their lease.

Some REITs are not even focused on commercial office space. Some are into rental properties or warehousing spaces. I think every REIT is a little different and deserves its own discussion.

Personally I would probably buy REITs over utilities at the moment.
The trend for retail space still on the upswing. Canada seem to be a really old school place and going to shops is still the preferred way to buy stuff. Not so for the US.
Deal Addict
Sep 2, 2004
2787 posts
1556 upvotes
REITs are an asset class that come up on here from time to time. The one that I most recently purchased was REI.UN. This wasn't a very large purchase. I may be adding to REITs in the new year (TSFA) so I'll be doing a bit of research on them in the coming weeks. They haven't been the best performers and now have the overhang of high rates and therefore more expensive debt, but I still maintain a small allocation in my overall portfolio (~5%).
Deal Fanatic
Dec 20, 2018
7758 posts
6966 upvotes
shplad wrote: This probably won't be helpful, but...I can't see the value in office/industrial REITs in the near and medium term. The trend is going to be more and more towards work from home, with exceptions/limitations, of course.

Business is going to slow greatly, if you read the tea leaves of the economy. Companies will be under pressure to both cut costs and go more green. One of the easier solutions to achieve both goals will be to rent less office/warehouse space.

Rising interest rates means when the REITs refi their mortgages, they may be paying a lot more interest on those properties.

Finally, REITs haven't had that much capital gains in the last few years, you mostly just get the monthly distribution. And for a 5 or 6 % yield, you can invest in other things with a lower risk profile. So, I just don't see it. What do others think?

Of course, I'm probably wrong, but that's my 2c worth.
it depends how fast/easy they can transition their office space into commercial (or even residential)..so for like AP.UN...i'm not optimistic at least in short/med term though they are more into residential sector now.

but for one like SRU.UN..i'm bullish on them med to longer term due to all the easily re-developable lands they have that can turn the paved parking lots to residential while revamping the commercial with more foot traffic from the residential and etc..
Sr. Member
Dec 26, 2012
673 posts
616 upvotes
Hamilton
Dream Industrial REIT has been Hammered but i'm staying the course on that one. Shipping, Logistics, and Ecom in general will only increase. A recession may slow down ecom and rising interest rates are always a problem but both of those are short term pains that this space will easily overcome.
Deal Addict
Jan 6, 2015
1486 posts
679 upvotes
The only green one I hold is SGR.un. The worst one is INO.un, European are full of mines.
Member
Sep 12, 2008
208 posts
87 upvotes
Canada
Meh...I'm starting to think BSR might be okay. Not a great distribution, and their payout ratio is very high right now, but they did grow earnings quite a bit this last quarter.

What do people think about BSR?
[OP]
Deal Addict
May 18, 2015
1782 posts
810 upvotes
Ottawa,Ont
sold D.un and purchased AP.un for tax loss
Deal Addict
Nov 21, 2014
2949 posts
5056 upvotes
Atlantic
Started small positions in AP-UN.TO and SRU.TO earlier this year. Not really concerned for either.

AP-UN owns real estate in highly coveted downtown cores. Personally, I think the WFH narrative doesn't hold true. As we move away from the pandemic, I would expect to see more and more companies encouraging more work from the office.

SRU as mentioned already anchored by Walmart.
Deal Addict
Nov 21, 2014
2949 posts
5056 upvotes
Atlantic
ovaltene wrote: Also eying NWH, feels like $10 is a safe spot to start a position in it with its very juicy div yield.
Thought about getting into NWH as well at these dividend yields. My issue with them is that they don't increase their dividends.......hasn't changed since 2010. But 8% ain't bad.
Deal Addict
Sep 2, 2004
2787 posts
1556 upvotes
EasyCompany251 wrote: Started small positions in AP-UN.TO and SRU.TO earlier this year. Not really concerned for either.

AP-UN owns real estate in highly coveted downtown cores. Personally, I think the WFH narrative doesn't hold true. As we move away from the pandemic, I would expect to see more and more companies encouraging more work from the office.
Allied Properties recently increased their dividend (shout out to @numismatic for the post) but at the same time I'm reading they are looking to sell assets to reduce debt load. Those two things don't necessarily go hand in hand.

I was a little bit disappointed to read they are considering selling their data centre assets. I liked that aspect of diversification that I got from them. I have not had any time to review any further than the articles below so I can't comment on their debt situation or anything needing more depth/analysis.
Allied Properties Real Estate Investment Trust (TSX: AP.UN) increases monthly distribution by 2.9% (from $0.1458 to $0.15) for 2023
2022-canadian-dividend-increases-2516834/16/#p36947312

https://www.theglobeandmail.com/busines ... ta-centre/

and a non-paywalled article in case anyone doesn't have access to G&M: https://www.datacenterdynamics.com/en/n ... to-canada/
Member
Jan 31, 2008
488 posts
204 upvotes
Montreal, Quebec
nikels21 wrote: Noticing a lot of REITs are 'beaten' down at the moment with rising interest rates and lower property values. Wondering if people have their eye on any in particular?

I am currently looking at Dream office.
I bought Dream Office over the past couple months, very close to the bottom. Dream's CEO Michael Cooper was buying in the $30s, Artis REIT is still buying in (10%+ holder) and Dream Office is still buying back shares although they seemed to have paused. It is one I've been adding to in small amounts. A medium size position. They have prestine office space in Toronto. I love the office space is dead narrative, it reminds me alot about the oil narrative, look at oil stocks now!

My main REIT is Minto. Currently trading at around $250k per unit, a wide deviation of private market valuation. Minto operates in the strongest rental market in Canada and has made substantial y-o-y and q-o-q gains with Q3 seeing the second largest y-o-y rent hike on new leases in the REITs history. I believe Minto was hit harder because it lacks liquidity and is lesser known.

I'll probably be adding to Minto with my incremental TFSA room and whatever is left of the RRSP. Minto REIT is my best idea.

I believe a new "REIT cycle" will start when investors are comfortable the final rate hikes are in. In the case of Minto, they have laddered maturities so really not impacted by current interest rates much at all until 2026. It also appears Minto like other REITs was likely the victim of tax loss selling, which gives it great promise for a Q1 recovery.

A great opportunity in Canadian REIT land. The Summit (SMU.UN) deal should have woken up more investors. Even the HCG takeover at a massive premium feels pretty foretelling about how foreign investors view Canadian real estate.
"It is never too late to be what you might have been. "

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)