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Canadian REITs Not Safe From Forced Liquidation at Trader’s Narrative





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There are very few moments in market history when absolutely everything is being sold: stocks, bonds, commodities, REITs, etc. We are going through one of these rare times right now and it can be gut wrenching. Forced liquidation in a bear market can be so brutal, it makes surviving to be able to take advantage of the next bull market a challenging goal.

One of the bastions of stability and what I considered one of the safest investments around, Canadian REITs, have now seen such forceful selling, they look as if they are toxic assets. Take a look at how it left behind the downward trend line and simply dropped off a cliff:

canadian reit capped index chart forced liquidation

You have to remember these are shopping malls, offices, apartment buildings, manufacturing facilities and warehouses. Basic real estate that is being used day in and day out. And it is being paid for by long term tenants. Sure, there is softening in the Canadian real estate market but it won’t impair what really matters, the income potential of the assets.

In fact, going back I can’t find any time that any of my REIT holdings have ever cut their distributions. While Canadian residential properties did participate in the global real estate bubble, REITs are grounded because they have to meet and exceed their financing costs. So they operate within tight financial confines and although their asset base may fluctuate with the market, their incomes and expenses are both well defined going ahead for many years.

Here is the biggest component of the REIT index, the bellweather Canadian REIT, RioCan:

riocan REIT price and yield long term

Right now it is yielding almost 10% - the last time it had this yield was way back in 2001 at a much lower price. This is of course, assuming that the yield is safe and won’t be cut.

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4 Responses to “Canadian REITs Not Safe From Forced Liquidation”  

  1. 1 Johan Lindén

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    “This is of course, assuming that the yield is safe and won’t be cut.”

    And I am sure that can’t happen ;)

  2. 2 Andrew

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    Aussie REITS have also been crushed, yields are very attractive… but…. I’m waiting still, nothing seems to be a buy in this market till the forced selling show signs of ending I guess.

  3. 3 J Cauchy

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    The CMBS market is under pressure (in the USA). So the price of CDS on CMBS is going vertical. The fear is that the CRE operators will default, buildings go to the banks, etc. That’s probably a big part driving the panic selling. If the economy craters in Q1 then REITs will have trouble making loan payments to creditors and dividend payments to shareholders. So then they deserve a markdown.

    Look at the leveraged closed end funds in the USA (RQI, RPF, JRS, RWF, etc…). Some of them are down 90% from late September prices.

  4. 4 alex farguson

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    Very nice information. Thanks for this.

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