First Capital Realty (FCR.UN.TO)

He owns the bonds. They have fantastic assets, and believe in not only growing their bottom line versus acquisitions, but also in the intensification story, such as core cities like Toronto. Their risk money is re-developing projects such as Yorkville, Lawrence or Liberty Square. Believes it is trading at a 20% discount to its NAV.

Feels the 3 top picks have probably lagged the market unfairly. This has lagged for a number of reasons. There is a bit of a concern on the retail market in general, but he would argue that their locations are highly resilient. They’ve had their guidance lowered a little because of some of the acquisitions they did, some developments cost a fair bit of money. However, long term, this is going to work out very well. Thinks management has got the message that they need to provide more FFO per share growth over the next couple of quarters. The previous CEO has been selling which has put some pressure on the stock, but has nothing to do with the valuation of the company. Dividend yield of 4.2%. (Analysts’ price target is $23.)

Generally the sector has underperformed. The largest shareholder has done a secondary offering of their shares. The feeling is that they will keep selling down. But this is a fantastic company. They are incredibly defensive. They execute well. He is closer to looking at buying it. Net operating income should really pop over the next couple of years.

Ranks in the top 3^rd of his database. A fairly slow growing company. Earnings growth is forecast to be negative, going from $1.03 in 2016 to $.86 in 2017. Free cash flow is a minus 3% on a 4^th quarter trailing basis. Using enterprise value to EBITDA, it trades at 22X 4^th quarter trailing and is down 2.6%. Dividend yield of 4.2%.

A retail REIT basically focused on Canada’s wealthiest neighbourhoods. They are always focused on the best locations, the best corners. Retail is facing some difficulties, but retailers are not just going to close up all their stores; the best stores in the best locations are going to continue to do well. This offers growth. Because of retail pressures, the stock has sold off giving an interesting opportunity. A compelling return over the next year. Dividend yield of 4.11%. (Analysts’ price target is $23.63.)

Retail focused, but it owns a lot of Yorkville and assets in areas of high income. They came out with a perfect quarter, raised guidance, and the stock dropped 5%, so he was buying aggressively that day. This is a rare opportunity to buy a very high quality high end retail at a very reasonable price. Yield of 4.31%. (Analysts’ price target is $23.81.)

A high-quality, urban focused REIT. Has a good growth rate of around 5% for the next couple of years. 81% payout ratio, so the dividend is safe. The balance sheet is pretty good, better than average. Debt to FMV is around 46%. Just raised some equity to fund a Montréal and Toronto acquisition, which looks accretive. Pretty expensive, trading at about 21X. He would consider selling some Call options a couple of times a year, obligating yourself to sell it at $22-$23 giving you some really good cash flow. 4% dividend yield.

They are not taxable yet so they don’t have to be a REIT. The real estate market is not great right now: Target left, rising rates, anything related to Alberta. FCR-T is defensive. They are great managers. A lot of properties are anchored by Shoppers or grocery stores. They de-levered their balance sheet a few years ago. They are benefiting from intensification in large cities.

Great company and great assets. Management team is focused on improving cash flow per share, while previous management was focused on building NAV. The slight difference is that one was focused on building quality real estate and the other is a bit more yield focused. Thinks the combination is generating a lot of attention again, as it has underperformed for some time. Very high quality, so this is one he doesn’t Sell, although may trim occasionally. 4.5% dividend yield.

Was a little worried that the valuation, especially relative to some of the other retail REITs, was a little expensive. However, it has pulled back and this is a pretty good entry point. This is a very, very high quality portfolio. Good management team.

A fantastic company. Very high quality management team. Great assets. What he likes is that they pay detailed attention to leasing.

(A Top Pick March 19/14. Up 16.29%.) An owner of high quality retail in Canada. Also, have a very large development pipeline and will likely invest over $1 billion in the next 5 years. Trading slightly above NAV, but this is because of the quality of its properties, the quality of its balance sheet and the above average free cash flow growth.

A good operator, but a lot of these look relatively cheaply compared to US counterparts.

In a rising rate environment, real estate will get hit hard. This one will get hit less because of their defensive asset class and they have premier tenants. Great management. He likes their properties. They are conservative, good operators and they will outperform the class. He doesn’t expect much even then, next year.

Grouped with REITs, but not technically a REIT. Good track record. Revenue is relatively safe. Staple industries are anchors. In a recession they will do better, but interest rates will impact them significantly. Dividend is secure, portfolio is diverse, but not one he would invest in.