Sprott’s Buying Canadian REITs Because Its Cities Are So CrowdedBy
Canada’s urban concentrations open investment opportunities
Holdings include Killam Apartment REIT, First Capital Realty
Sprott Asset Management LP is buying Canada’s real estate investment trusts because residents have no where else to go.
More than a third of Canadians live in the Toronto, Montreal or Vancouver metropolitan areas, 2016 census data show, while peers New York, Los Angeles and Chicago account for just a 10th of the U.S. population. This concentration opens investment opportunities in urban areas, according to Dennis Mitchell, who helps oversee C$3.1 billion ($2.3 billion) at Toronto-based Sprott.
"There isn’t the potential for massive oversupply like you can get in the U.S.," he said in a phone interview on Monday. "That tends to contain and constrain the supply of real estate, which is generally the number-one cause of real estate crashes."
Mitchell’s strategy runs counter to that of several investors who are betting against Canadian REITs on concern that low oil prices and the woes of Home Capital Group Inc. will roil the market. Accurate predictions are important because real estate is the main driver of the fastest growing economy in the developed world.
Sprott’s Mitchell sees plenty of sound investments in a country where most REITs have occupancy rates higher than 90 percent. His fund holds Killam Apartment REIT, which owns C$2 billion of apartment buildings and trailer parks in Atlantic Canada, Ontario and Alberta. The S&P/TSX real estate index is up 5.3 percent year-to-date, compared with a gain of 0.8 percent for the S&P/TSX Composite Index.
On the commercial front, he holds First Capital Realty Inc., which has a portfolio of urban retail properties with total assets worth C$9.4 billion as of March 31.
"Regardless of what’s happening with the price of oil, people are going to need to buy groceries and fill their prescriptions," Mitchell said. "They’re simply not going to have the same type of volatility and cyclicality that you’re going to see in other retail names, say in the U.S. or Europe."
Mitchell added that he prefers Europe to North America, as it offers better risk-adjusted returns and less political risk. Besides Canadian REITs, he also owns infrastructure companies including Emera Inc., Fortis Inc., Pembina Pipeline Corp., Enbridge Inc. and TransCanada Corp.