Allied Properties REIT (AP.UN.TO)

It's still early to buy office space. AP has benefited a lot from a tight Toronto office market. But there's a lot of new space coming on market. AP's clients, like Shopify, have said they won't need office space, though he doesn't think Allied is at risk. However, this trend could dampen their asking rates in the future. AP has a great density story with lots of excess capacity to build, but entering a weaker office market, this timeline has been pushed out. Maybe the value is here long-term, but he'd steer clear of AP in the short term.

He is a big fan of this company and likes their management team. Their own risk management tolerance is low. A lot of buildings in Toronto and Vancouver, but they also hold office space in tight markets. They find older buildings and turn into nice new spaces. The balance sheet is healthy.

Always liked it. It's the best in class, dealing in the industrial space in Canadian cities. They have executed very well. They beat their last quarter and outperform the market. But it trades at a pricey 26x AFFO which gives him pause. It rents small office space that's attracting tech companies. This is in the sweet spot, but this REIT is hard to own when it's this expensive.

(A Top Pick Nov 8/16. Up 26%.) One of the highest quality Canadian REITs available. Focused on the major urban centres. The only negative is that it’s trading at a bit of a premium to most analysts’ estimates NAV, so he would be a little cautious. The argument would be that in the next 12 months it will grow into that premium. Dividend yield of 3.7%.

Industrial, office and retail. They expanded into the US. There was a little selloff with the raise in rates. The rest of the rate increases are baked into the stock price.

An office REIT, not necessarily a cheap one, but does have a lot of development potential. They own Class I brick and beam office buildings, which tend to be older office buildings where you see a lot of advertising and technology companies in. There is scarcity value. They have dominant market share in Canada. The nicest thing is the development intensification potential, because in some cases they are taking these buildings, expanding them, building them up, and will be able to get much better yields when they do that. Dividend yield of 4.51%. (Analysts’ price target is $38.53.)

Missed on Q3, so he reduced his guidance. Poorer lease-ups in Montréal and temporary vacancies in Vancouver and Edmonton. 2016 was definitely a step-back year. There has been a big pull-back in REITs, but this is still trading towards its five-year average, so it is not cheap. However, he sees a big return of growth next year which would give about 12% adjusted funds from operations growth smoothed out from 2016 to 2018. One of the best balance sheets out there, and a lower payout ratio. The kind of REIT that should hold up in a rising bond yield environment. He would Sell a Call on this, wait for it to come off a couple of bucks, and then Write a Put on it. Dividend yield of 4.3%.