RioCan Real Estate Investment (REI.UN.TO)

He is not invested in REITs at all. Doesn’t like them. All REITs have a lot of debt. Also, they are pro-cyclical. Under IFRS (international accounting standards), they are allowed to capture gains in their portfolio and put them on their balance sheet. He can’t think of a worst thing to do for a cyclical such as real estate.

We are about to go into a phase where things that are interest rate sensitive will underperform. This one does a lot of financing so it should underperform for the next year or so. Dividends are safe.

He continues to hold some REITs, including this one, in his client accounts. This is going to be volatile. Came off with the taper tantrum in 2013, but he doesn’t think this is going to happen this time around. This one is fine for the long-term. They have some of the best properties in Canada.

5% dividend is very good, and that is both the good news and the potential bad news. Very solid company and very well managed. Largely Canada, but have gone in opportunistically into the US. It will be a rock solid investment as long as bond yields are down in the 2%-3% range. Doesn’t feel there are any company risks. Have a great team, great leadership and great properties. You have risks if we have more inflation and people can get a higher return on a bond. This is probably fine for a few years.

Reported today and their same property operating income was up by 1.4%. This has a $1.1 billion development pipeline that can drive growth for years. Their payout ratios are trending down which is a good thing. Very strong balance sheet. The quality is reflected in the valuation of 18X. If you want a retail REIT that maybe has more sizzle and upside, look at Calloway (CWT.UN-T). It has a higher dividend, lower payout ratio and trades at about 14.5X.

20% of assets are in the US. They are related to 10 year bond in terms of interest rates. Their debt is quite low so you don’t have to worry much about it. He thinks there will be more and more people coming into this space, although this one may have gotten a little ahead of itself.

With more online shopping and fewer malls in the US, what is the impact on this company? Thinks it would have an effect longer-term, but short-term doesn’t think it will have a disastrous effect. Have been doing mixed residential where they have a condo tower over stores. Even if rates creep up a little bit, you should still be okay. A good name.

(Top Pick July 9/13, Up 12.55%) Largest REIT in Canada. Done a good job of using capital markets to lower leverage and payout ratio. They are going to focus on urban assets that they can develop apartment buildings on. This is uncommon for retail landlords.

Canada’s largest REIT. A really great opportunity to buy the highest quality management, and look at something that has development opportunities and growth potential. Had a bit of a run, so wouldn’t be surprised if this pulled back, However, this is still a great company to be invested in. 5.25% yield.

Feels the capital appreciation from here is somewhat limited in the absence of a takeout, which he views as somewhat unlikely this year. The quality of their assets is truly institutional with about 75% of them of them in Canada’s 6 largest cities. This is a portfolio that is very difficult to replicate. The mark to market on the leases that are coming up for renewal is north of 10%, so you are going to continue to see that uplift in cash flow, year-in and year out. You should also continue to see dividend bumps over the next several years. Somewhat fairly valued on NAV.

Largest REIT in the country. Retail focused, so they have a number of retail centers across the country, most of them anchored by high-quality tenants. Very well run. One of the things she looks for in REITs is their ability to grow organically and she feels this one is very well-positioned.

Has reduced his REIT weighting. Thinks very highly of management and the company. They’ve gone into the US and expects they will do well there. They’ve got great, great discipline.

Done well year to date. Liquidity in the sector was a fear but now money is coming back in. There is not a bad time to buy into this one. Has about a 5% premium to NAV.

A good name. One of the high-quality names. Has a compound annual growth rate of around 4.5% versus the retail peers of around 2.6%. Trading at a higher valuation of 17.8 but you get what you pay for. Low loan leverage and a good balance sheet. An internal pipeline of $1 billion of developments that they can use to fuel growth, as opposed to having to go and buy in the open market.

How do you feel online purchases will affect this REIT? Great question. It is one he has been fielding more recently when people are asking about retail. Focus for many retail landlords across North America is now on the quality of their assets and the amount of foot traffic those assets see on a daily basis. That is consistently being tracked and it is being seen that the lower quality assets, especially in the US, are suffering. Especially the ones that are selling discretionary goods. Stores like Sears, JCPenney, Best Buy are lowering their footprint. They are focusing their stores on higher quality assets. This REIT’s strategy has been to focus on Canada’s 6 major markets, VETCOM (Vancouver, Edmonton, Toronto, Calgary, Ottawa and Montréal). By focusing on those urban markets in having 70% of their assets in those markets, they believe population growth and high quality locations are going to drive people to these retail assets. There will be a proportion of people that start to shop online. In Europe, e-commerce is a much bigger issue. Doesn’t believe this company’s distribution is at risk over the next 5 years. 5.3% yield.