Opinions
Stephen Groff
Morguard North American REIT
MRG.UN-T
COMMENT
Mar 15, 2017
Stock price when the opinion was issued
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They own apartments both in Canada and the US. This is a classic case of good real estate trading at a wide discount to its NAV in apartments. Current NAV is $14-$15. Trading at a large discount because it has a very large controlling shareholder (Morguard Corp) as well as having higher leverage than many of its peers. Also, as a small-cap REIT, most investors are going to wonder how they are going to grow.
These are apartments. In the real estate sector, the apartment sector tends to have the shortest lease term and tends to be the most defensive asset class amongst all the real estate subsectors. He likes the sector in general, but doesn’t own this one. His big knock on US apartments is excess supply. Thinks this will peak in 2017 and gradually moderate, and then you should see fundamentals improve, especially given the potential uptick in consumer incomes on the back of a tax cut in stronger employment. Payout ratio is relatively good at about 70%. Dividend yield of just under 5%.
He likes it for being in multi-family rentals. It's challenged because it's controlled by Morguard Corp. Diversification is 43% in Canada, 57% in the United States. Nice dividend. Probably worth $22/share. But there's better value elsewhere like CAP REIT or BSR.
A vehicle for holding more stable properties. More of a yield play than Morguard Corp. He owns both. Over the long-term, Morguard Corp is the more attractive, because it is where fees accrue to, and also retains more capital instead of paying the bigger dividend. Because the shares of Morguard Corp trade at a meaningful discount to its fair value, they continue to buy back stock from time to time, which further accretes value per share.