For investors who see opportunities in the real estatesector, but prefer to avoid the disadvantages of buying physical property, real estate investment trusts (REITs) offer an attractive alternative.
Listed on TSX and TSXV, REITs issue units that trade like stock. With the pool of capital raised from investors, they buy income-producing assets that generate regular distributions of cash for their investors.
There are 30 real estate companies on TSXV, with a total market capitalization of $1 billion; six of these are REITs that account for $505 million in market capitalization. On TSX, 49 real estate companies are listed, and have a combined market capitalization of $69 billion. Of these, 31 – and over $47 billion in market capitalization – are REITs.
While REITs account for a small percentage of listings on the two exchanges, they’ve been particularly active amidst the uncertainties of the global economy.
Two of the top 10 financings on TSX in Q2 2012 were REITs. Since the beginning of the year, real estate companies have raised more than $2.9 billion on TSX and TSXV, with the lion’s share being raised by REITs. Last year, Dundee International launched the fourth largest IPO on TSX in 2011, raising $410 million, making it the largest real estate IPO in more than a decade. Dundee International used the proceeds to buy 295 office and other commercial properties in Germany, with about 12.5 million square feet of leasable commercial area.
Because rental rates tend to correspond to inflation over the long term, some investors regard REITs as a hedge against inflation.
In June of this year, another REIT, BTB, graduated from TSXV to list on TSX after recording a 36.9% increase in unit holders’ equity in 2011. This increased rental revenue by 19.8%, which increased net operating income by 14.2%, and increased total assets by 22.6%, from $293 million to $359 million. Based in Quebec, BTB began operations in 2006 and now holds a portfolio of more than 50 mid-market office, industrial and retail properties.
“The graduation to TSX represents an important milestone for BTB,” said Michel Léonard, President and Chief Executive Officer. “It acknowledges the years during which we have been working to build a strong portfolio for BTB.”