09:35 EST Wednesday, Jul 17, 2002
Andrew Allentuck
Click here to track the pro's picks
WINNIPEG (GlobeinvestorGOLD) – Sandy McIntyre’s real estate fund is perfectly located for top returns.
His Sentry Select REIT fund, a $3-million portfolio of real estate investment trusts, has turned in an 11.1 per cent gain for the 12 months ended June 30, 2002, topping the Globe real estate peer index return of 9.4 per cent and the 10-per-cent average advance by real estate funds in the period. It’s a first quartile return in a competitive market. For Mr. McIntyre, vice president and senior portfolio manager at Sentry Select Capital Corp. in Toronto, it’s vindication for his method of buying operating real estate companies that typically sell at 15 to 30 per cent off their net asset value will turn into REITs, which typically go for a premium of 5 per cent over NAV. Operating companies have more risk since they use some cash flow for reinvestment in the risky property market, while REITs just return cash flow to the owner and so produce an higher quality, more annuity-like income stream, he said. He tries to be fully invested but is leery of making new investments as the Canadian REIT market hits new highs.
“Investing in real estate is all about the contractual relationship with the tenant,” Mr. McIntyre said. “What comes out of that relationship is a discounted cash flow. What we do for our fee is to weigh the cash flow against the risk of the property.”
Among the portfolio’s top picks is Summit Real Estate Investment Trust, a Halifax-based REIT that has been moving into high quality industrial properties in the Brampton-Malton area. The holding makes up about 6 per cent of the portfolio, and was purchased in the fall, 2001, at an average cost of $14.75. The units have recently traded at $15.65. The distribution for 2003, estimated to be $1.53 is 86 per cent of cash flow of $1.78, unchanged from 2002. But if Summit raises the payout ratio to 90 per cent, a likely event, the distribution could rise to $1.90, he said. That would raise the market price to $16.40 within 12 months, he said.
Riocan REIT is a Toronto based company that owns large malls and accounts for another 6 per cent of the portfolio. The units were purchased at an average cost of $10.01 in 1998 and trade at $12.69 currently. The distribution is expected to rise to $1.14 in 2003 from $1.11 in 2002. Riocan’s cachet is that its malls face outward towards their communities and parking rather than inward toward courtyards and other shops, the more traditional style of malls. Riocan’s rents, up from $17 a square foot in 1999 to $25 today, should continue to rise, so the price of Riocan units could be $14 within 12 months, Mr. McIntyre said.
Another of Mr. McIntyre’s top picks is IPC US Income Commercial REIT, a Toronto-based real estate company with holdings in smaller U.S. markets such as Nashville, Tennessee and Philadelphia, Pennsylvania. IPC is 4 per cent of the portfolio. Established by the Reichmann family in 2001 to get additional capital to buy more property, IPC units went into the Sentry fund at an average cost of $10 at the Dec., 2001 IPO and have recently traded at $10.40. The cash payout of 91 cents per unit for 2003 would be unchanged from 2002 unless IPC raises its payout ratio, a likely event, Mr. McIntyre said. Units should rise to $12.70 within 12 months as a result of two property acquisitions made in the last month that have raised distributable income and net asset value, he. McIntryre added.
Andrew Allentuck writes about investments for The Globe and Mail, and reviews books on finance for globefund.com and globeinvestor.com. He is also the author of several books
Home Equity Income Trust
Short Description: Initial Public Offering of Income Trust Units via Bought Deal
Price: 10.000
Settlement: Expected on or about August 5, 2002 / Prévu vers le 5 août 2002
Anyone knows much about this one? |
