VALUE IN TIME...ALWAYS

Real Estate stocks, trusts should outperform during recovery
Garry Marr, Financial Post

Published: Saturday, February 07, 2009

Gail Mifsud, a Blackmont Capital analyst, says there has been a major transition in the capital markets that should change the way investors value real estate companies and trusts.
Ms. Mifsud says the focus for investors used to be on productivity and innovation before shifting to interest in companies with hard assets and base materials as well to financial stocks. Now, she says, investing is about to become looking for companies with consumable goods and services with a focus on stocks that provide physical and personal infrastructure.
"For real estate investors, this is a likely to bode well for stocks focused on rental apartments, senior care, recreational travel, self-storage and general merchandise landlords," says Ms. Mifsud.
As far as real estate, she predicts a drop-off in public and private real estate transactions and capital markets investment activity, and an increase in debt spreads and lower asset prices. Real estate fundamentals including occupancy, rents, margins, and funds from operations will also weaken.
"We would advise clients in the short-term to under weight the Canadian REIT sector," says Ms. Misfud.
"However, we continue to believe in the long-term investment merits of the sector as our analysis has shown that real estate stocks underperform leading into a recession, but outperform during the recovery."
Her top picks are Boardwalk REIT (BEIun/TSX), Canadian REIT( REFun/TSX), Dundee REIT (Dun/TSX), and Morguard REIT( MRTun/TSX).
"Our selected top picks offer very compelling double-digit total returns, reflecting investor panic-selling of all stocks. Our top picks are trading at significant discounts to underlying value and very depressed pricing multiples relative to peers," says Ms. Mifsud.