Canadian real estate investment trust (REIT) and real estate operating company (REOC) performances have made a dramatic comeback since the early dark days of the pandemic.
RBC Capital Markets Real Estate Group managing director Carolyn Blair did a deep dive into the numbers during a Sept. 28 presentation as part of the virtual RealREIT conference. Blair opened by highlighting changes in the Canadian REIT market over the past year.
Flagship Communities was the only REIT to issue an initial public offering (IPO) on the Toronto Stock Exchange (TSX) since last September. Brookfield Property Partners and Northview were privatized, while WPT’s privatization has been announced but not yet finalized.
Of the 46 REITs and REOCs included in Blair’s analysis, there were 19 distribution increases by 13 of the entities and only three distribution cuts.
“That’s a welcomed improvement from last year when there was an unprecedented 11 distribution cuts by nine REITs and REOCs,” said Blair. “Eleven of this year’s increases were from diversified (REITs), and six of these hikes partially reversed cuts announced last year.”
TSX performance of REITs
The aggregate TSX market capitalization for Canadian REITs has increased by $27 billion to $99 billion in the largest ever one-year gain. That total is also $4 billion above the pre-pandemic peak reached in January 2020.
The year-to-date (to Aug. 30 unless otherwise specified) equity issuance by REITs and REOCs is $2.6 billion in 18 transactions, with 60 per cent occurring in the usually quiet period from June to August.
That’s already ahead of 2020’s total of $2.5 billion, which represented the third-lowest issuance since 2008.
Thirteen TSX-listed REITs and REOCs have done equity raises in 21 offerings since September 2020.
Industrial REITs raised 43 per cent of the equity, followed by residential at 21 per cent, office at 17 per cent, retail at nine per cent and diversified and seniors housing at six per cent.
For the third year in a row, no equity was raised for hospitality, which is represented by just one REIT.
Distributions, AFFO and leverage
The weighted average distribution yield so far this year is 3.8 per cent, which is down more than 200 basis points from 2020. Similar to the past several years, the yield range was zero to just over 8.5 per cent.
The REITs and REOCs currently most highly valued for each dollar of adjusted funds from operations (AFFO) they’re expected to generate are Summit Industrial Income, American Hotel Income Properties, InterRent, StorageVault, Minto Apartment and CAPREIT.
“The ones that retain more of their AFFO, either to serve as a risk cushion or to find growth, tend to be more sustainable,” said Blair.
The simple average net-debt-to-enterprise-value ratio for the REITs and REOCs is 49 per cent, with a weighted average of 43 per cent. Both figures are down eight points from last year.
Twenty-five of the 46 REITs and REOCs have leverage below 50 per cent and 19 are below 45 per cent, 10 more than in 2020.
Thirteen of the businesses are under 40 per cent, up from five last year. Eight have leverage above 60 per cent, less than half of last year’s total.
“Keeping debt in reasonable territory is seen by many to not only be good risk management practice for REITs but also a great source of growth potential,” said Blair. “There’s nothing like a good crisis to encourage folks to reduce their risk profile.”
Aggregate earnings growth increased by 10 per cent in Q2 2021. Aggregate earnings growth has averaged a modest 1.6 per cent over the past 20 years.
Returns on REITs
REITs offered a return of 43 per cent over the past 12 months compared to 27 per cent for the TSX Composite Index, one per cent for properties and negative two per cent for bonds.
Over the past five years, REITs had an average 12 per cent compound annual growth rate (CAGR), the same as the TSX Composite Index, but better than the five per cent for properties and three per cent for bonds.
The 43 per cent return for Canadian REITs was better than the 41 per cent earned in the United States, the 32 per cent in Europe and the 20 per cent in Asia.
The REIT index has had a CAGR of 11.4 per cent since 2001, compared to 6.9 per cent for the TSX Composite Index and five per cent for bonds.
“While the REIT index and TSX wiped out nearly five years of gains in just over one month at the beginning of the pandemic, mercifully both have since recovered,” said Blair.
The Canadian REITs and REOCs with the top total returns over the past 12 months are Melcor Developments, Nexus, Summit, StorageVault and Melcor REIT. All REITs and REOCs delivered positive returns over the past 12 months, compared to only eight the previous year.
Hospitality is the top-returning sector at 66 per cent, albeit for just one entity, which is followed by diversified at 63 per cent, industrial at 49 per cent, residential and retail at 41 per cent, seniors housing at 37 per cent and office at 25 per cent.
Last year’s comparable 12-month returns were industrial at 11 per cent, residential at -10 per cent, retail and office at -17 per cent, diversified at -30 per cent, seniors housing at -35 per cent and hospitality at -60 per cent.
The top performing REITs and REOCs, with at least 10 years of history and annualized returns of 15 per cent or more since their IPOs, have been CAPREIT, Mainstreet, Killam and Allied. Another 14 with at least 10 years of history had CAGRs of 10 per cent or more.
Of the 40 entities that have been trading for at least five years, 28 have CAGRs above 10 per cent and all but two are in positive territory.
There are four REITs and REOCs that haven’t cut distributions over the past 10 years, have five-year AFFO CAGR per unit and net asset value (NAV) CAGR per unit of at least three per cent, an AFFO payout ratio of below 90 per cent and net debt to enterprise value of less than 50 per cent: Allied, CAPREIT, CT REIT and Killam.
Impact of the pandemic
Despite the huge impact of the pandemic, the stock market recovery was the fastest on record by four to six times over the real estate correction of 1989, the tech bubble of 2000 and the financial crisis of 2008.
The TSX dropped 37 per cent in one month early in the pandemic and fully recovered in eight months on its way to record highs.
While REITs have largely recovered from their deepest depths, it hasn’t been even among sectors.
Industrial was the only REIT asset class that had delivered a positive return by last November, at 14 per cent, when COVID-19 vaccines were announced.
Since that announcement, industrial returns have been 59 per cent, essential retail and residential have been 21 per cent, non-essential retail has been seven per cent, seniors housing has been three per cent, office has been -2 per cent, and diversified has been -13 per cent.
Diversified REITs are more exposed to enclosed mall ownership, and government-imposed retail lockdowns hurt their performance.
The pandemic caused a surprising lack of damage to REIT and REOC cash flows. Same-property net operating income for all asset classes was -2 per cent in 2020 compared to an average of +2 per cent since 2004.
“Long in-place leases and government subsidies served to mitigate the damage, but you may be surprised to learn that business insolvencies reached a low in 2020, down 25 per cent from the prior year,” said Blair. “So far, 2021 business insolvencies are even lower with only 1,211 filings year to date.”
It remains to be seen what impact the expiry of government subsidies will have on that number.
REIT property values
There’s also been minimal damage to REIT property values during the pandemic. NAV per unit growth was up 13 per cent to the end of August, more than reversing all of 2020’s losses.
Industrial REITs had seven per cent NAV per unit growth and residential was at three per cent last year, making them the only ones in positive figures.
All of the rest were negative, with office at -2 per cent, essential retail at -5 per cent, non-essential retail at -11 per cent, seniors housing at -12 per cent, and diversified at -23 per cent.
Year-to-date industrial NAV per unit growth is 26 per cent, followed by residential and essential retail at 13 per cent, non-essential retail at 12 per cent, seniors housing at 10 per cent, diversified at seven per cent and office at four per cent.
The forecast NAV per unit growth over the next 12 months is eight per cent for industrial, seven per cent for residential, six per cent for seniors housing, five per cent for essential retail and diversified, and four per cent for non-essential retail and office.
Saint John saw record real estate prices. So why did assessments barely budge, mayor asks – CBC.ca
Thousands of Saint John properties that escaped assessment increases this year, including dozens that sold for record prices, are slowing growth in the city’s tax base for 2022 compared to other cities.
That’s at odds with predictions from Service New Brunswick officials earlier this year, and Mayor Donna Reardon wants to know why assessments in other communities appear to follow different rules.
“That to me is a question I’d like to get answered,” Reardon said.
“I have to say I don’t understand it.”
Real estate sales in Saint John set records in both volume and price over the past year.
But although Service New Brunswick officials told the city in February that it would “reap some of that reward” with growth in its 2022 tax base, the results announced earlier this month were underwhelming.
City’s tax base ranks 43rd among N.B. municipalities
Based on property assessments completed this year by Service New Brunswick, Saint John’s tax base is expanding by 6.24 per cent for 2022 according to figures released earlier this month by the province
That’s more growth than in recent years, but still well below the provincial average of eight per cent.
Part of the sluggishness is because 5,332 residential, commercial and industrial properties in the city, one in every five, escaped any assessment increase at all from Service New Brunswick.
That helped to drag growth in the city’s tax base down to 43rd place among all New Brunswick municipalities.
Moncton had only 888 properties awarded no assessment increase for 2022 and Fredericton just 680.
Most perplexing for Saint John are dozens of properties given no change in their taxable values, even after being sold to buyers for double their assessment and more.
On Saint John’s upscale Anchorage Avenue, five waterview lots sold earlier this year at prices between $151,000 and $230,000.
The sales were an average of 144 per cent above the properties’ 2021 assessed values, but the high prices triggered no changes in their assessments or in assessments of other lots in the neighbourhood.
As a result, the sales added nothing to Saint John’s critical tax base growth for 2022. One of the Anchorage lots purchased in May for $169,000 has since been relisted by its new owner at $209,900. However, for taxation purposes, Service New Brunswick continues to assess it at $75,200.
That appears to contradict Service New Brunswick’s claims that its annual assessments approximate what a property will reasonably sell for if it were put on the market.
According to the agency, a collection of actual sale prices in a neighbourhood are considered the most reliable guide to what assessments should be in an area.
“Your property’s real property assessment value reflects its market value,” the agency explains on its website.
“Our assessors aren’t actually determining market value,” it notes. “They are simply reflecting the values that have been established by buyers and sellers in local real estate markets across the province.”
That is what happened in Moncton in a development going up around the Mountain Woods golf course.
This year, eight lots in the development sold to buyers for an average price of just over $102,000 each — 98 per cent above their assessed values.
Based on those sales, Service New Brunswick raised assessments on all eight lots and six others nearby by an identical 98 per cent. The change accurately reflected sale prices in the development and the rising assessments added $621,400 to Moncton’s 2022 tax base.
It’s a sharp contrast to what Service New Brunswick did on Anchorage Avenue and in a second Saint John neighbourhood along the Bay of Fundy.
On a stretch of Saint John’s Sea Street, perched above Bayshore Beach with panoramic ocean views, 18 building lots sold to buyers this year for a combined $892,750.
It was, on average, more than double their assessed value.
However, 13 of the lots have been awarded zero per cent assessment increases for 2022, as have seven existing homes that sit among them on the same street.
Service N.B. ‘can’t discuss the details’
Oceanview properties in Saint John have been among the highest in demand over the past year, selling for $100,000 or more above their assessed values in several cases.
Service New Brunswick says it cannot reveal why it concluded Oceanside properties on Sea Street warranted no increases in their values, even those that sold for higher than their assessed price.
“We cannot discuss the details of individual properties,” Jennifer Vienneau, Service New Brunswick’s director of communications, said in an email.
“It is not uncommon for external factors to affect the market value. On an annual basis, property assessors analyze these factors to make adjustments to assessment values that are in line with market activities.”
Reardon thinks Service New Brunswick is not following the same assessment rules in Saint John as it does in Moncton, and that difference is restricting growth in her city’s tax base.
“If I say a lot’s worth $150,000 to me and there’s been a few of them that have sold for that, that’s the price. That’s what they’re worth,” she said.
“We’re trying to work with Service New Brunswick. I think it needs to be more transparent, more clear to people. We need to understand how they come up with the calculations.”
Windsor-Essex real estate market slows down — so sellers pulling out all the stops – CBC.ca
Windsor’s sizzling real estate market is seeing a slight slowdown — and it means sellers have to up their game to draw people in.
Prices are still high in Windsor-Essex but realtors say more listings over the last several months are leading to fewer offers on individual homes, putting buyers in a better position with more options and less competition.
“When buyers have more choice, sellers have to do a little bit more to stand out from the crowd,” explained Danial Malik, a broker at ReMax Preferred.
“They have to do more in terms of professional photography, videography, staging. They want to make sure there’s as many eyes as possible on their property, so it gets sold for top dollar.”
The average price of a Windsor-Essex home in September was $552,186, according to data from the Windsor-Essex County Association of Realtors. That’s 27.4 per cent more than September of last year.
Listings have also doubled from what we saw at the beginning of the year (1,035 listings in September compared to 475 in January).
One home stager says business has doubled
“Things have picked up quite a bit,” said Julie Kapitan, owner of Lemon Tree Living, a home staging company in Windsor-Essex.
At the start of the year, there was a “buying frenzy,” and homes were selling quickly with or without staging, she said.
“But something shifted I think in May and June and the calls started to come in,” Kapitan said.
Her business has doubled since then.
She said it helps people imagine living in the space.
‘Property has to stand out’
Aditya Soma with the WinCity Real Estate Team says staging is “crucial” for any sale.
“There is more inventory,” he said.
“That means your realtor and your stager, you know, have to do a fantastic job by pricing it right, by presenting it well to attract as many buyers as possible.”
Soma added that some sellers list their homes and try to sell without a stager, and later realize they need to “revamp” their approach in order to get the offer they’re hoping for.
Malik explained that he’s also seeing more cancellations of listings in recent months. That’s because, given the trend of the last year or so, expectations are very high for sellers.
“They’re trying different realtors or they’re trying different strategies to get that dollar amount, whereas the property … may not be worth what they’re asking for,” Malik said.
WATCH | Broker Danial Malik on what the current market means for buyers:
Hence, there’s a stronger lean toward marketing tools like home staging — though it can be a pricey option, depending on what you need.
Kapitan explained that staging could start at $1,000 if accessories are the only items required by the seller. However, if furniture is required, home staging could cost $5,000 or more depending on the size of the home.
She also works with house flippers in the community to help them get the best possible price.
Flippers turn to stagers
Jami Jacklyn, a partner at M & J Doors Ltd., a St. Thomas company that flips houses, recently acquired a Windsor home that cost them close to $200,000, they invested between $30,000-$50,000 into renovations. After listing the home for $199,000 and using Kapitan’s home staging service, it recently sold for more than $100,000 over asking.
“Previous, in my real estate career, I didn’t think it was important, to be honest. I’ve sold houses before,” Jacklyn said.
“Now that we’re doing this in more volume, I have a massive respect for stagers and it has helped my business tremendously.”
Jacklyn explained that her company tries to choose “eyesores” in the community to flip in order to improve the neighbourhood, while still being able to sell the renovated property to first-time home buyers, even though the work on the home drives that price up.
But with or without a stager, Kapitan suggests depersonalizing your home by removing family photos, de-clutter, avoid patterns, use white linens and white towels, and clean so that your home is spotless.
Meanwhile, even though the lull in the market puts buyers in a better position, it’s still a seller’s market.
Hamilton mixed-use dev. gets height-limit exemption – Real Estate News EXchange
Ground has broken on the latest project in downtown Hamilton, a mixed-use development at 75 James St. S. which will tower more than 30 storeys and include over 500 residential units.
The Labourers’ International Union of North America’s LiUNA Pension Fund of Central and Eastern Canada (LPFCEC) holds 100 per cent interest in the development. Fengate Asset Management is the investment manager, developer and asset manager, while The Hi-Rise Group is the development manager and SG Constructors is the builder.
The Downtown Hamilton Secondary Plan states buildings shall not exceed the height of the Niagara Escarpment, which works out to about 30 storeys, but the partners applied for and received permission from the city to exceed the height restriction with the James Street building.
“Working collaboratively with city staff and local stakeholders, the building height was determined with consideration for relevant planning policies, precedent projects and addressing local housing needs,” Fengate managing director and group head of real estate Jaime McKenna said in an email exchange with RENX.
An application filed with the city called for a tower of up to 34 storeys.
Plans for the James St. S. property
The James Street site was formerly a bank and was acquired for an undisclosed price in 2018. It was assembled in 2020 with another site at 44 Hughson St. S. – which is the current home of the LiUNA Local 837 and LiUNA Central and Eastern Canada regional offices.
It’s still to be determined if the residential component of the development will be a purpose-built rental apartment or condominium. It will include office and commercial space and a heritage component.
“Due diligence is underway to determine the best model to meet residential needs in downtown Hamilton,” McKenna wrote.
The development will help address significantly increased residential needs in Hamilton from people of all ages and occupations, including students, millennials priced out of the Toronto market and retirees.
The residential units will range in size from studios to three bedrooms. Building amenities will include fitness facilities, party rooms, relaxation lounges, private rooftop green space and underground parking.
LiUNA and the development
“LiUNA is incredibly proud to be addressing the increasingly critical residential needs in Hamilton,” Joseph Mancinelli, LPFCEC chair, LiUNA International vice-president and regional manager for Central and Eastern Canada, said in an email interview with RENX.
“I myself, a Hamiltonian, have a personal passion for the future of our city, addressing current infrastructure needs that will continue to foster economic development, job opportunities and growth.”
Mancinelli said the location is transit-oriented and pedestrian-friendly, offering easy access to necessities, work, school and entertainment.
“Our LiUNA HQ of the Central and Eastern Region as well as the LiUNA Local 837 office at 44 Hughson will be seamlessly integrated into the development and expanded with new office space, keeping the artistic and historic façade of the front of the building, honouring the foundation and history of those before us,” said Mancinelli.
“Further, a number of live/work units will be provided, catering to local small business needs.”
A 2025 completion is being targeted for the development.
The development partners
LiUNA has half-a-million members across North America, including more than 140,000 in Canada, who predominantly work in construction.
The LPFCEC was established in 1972 and is one of the fastest growing multi-employer pension funds across Canada. Its diverse investment portfolio has more than $10 billion in assets.
Fengate Asset Management is an alternative investment manager focused on infrastructure, private equity and real estate strategies. It has a total asset value of more than $20 billion and offices in Toronto, Oakville and Houston.
Fengate Real Estate is involved with more than 75 properties and investments. The completed value of its portfolio is more than $9 billion and it has more than $4 billion in value under development.
The Hi-Rise Group is a fully integrated development and construction company that was founded in 1979. It initially functioned as a merchant builder that sold most of the projects it developed and built, but it now holds a number of properties across Ontario.
SG Constructors was founded by Matt Stainton and its management team has accumulated more than a century of experience working on construction projects.
The two-tower King William Residence in Hamilton and the revitalization of Yonge Eglinton Centre, Yonge Sheppard Centre, 66 Wellington St. W., 111 Richmond Street West and 180 Wellington in Toronto are among its projects.
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