Navigating third leg of REIT values

way, helped by the “positive” push from the creation of a new separate real estate index (previously part of the financial services index) and the feeling that rates would continue to stay low. “But I thought the REITs were fully valued, which meant there was little upside.”

That environment meant the two analysts largely abandoned a “top down” approach — which favoured a buy-and-hold strategy — and opted more for a bottom-up approach that focused on stock-picking.

“After that, I got lucky,” said the Montreal-based Blondeau, when referring totheeffectsoftheelection of Donald Trump, including the “Trump Tantrum,” which had a positive effect on interest rates.

But in the middle of 2017, Blondeau said his team readjusted its strategy, because the “Trump trade” was faltering. As a result, the team opted “not to be too cautious.” Accordingly, it upped the rating on half a dozen of the 20 REITs or real estate operating companies that it covers. Now two-thirds of that universe is rated a buy.

“We are more open to be more reactive in our ratings. We will be more dynamic (given) that rates are becoming more volatile,” said Blondeau, noting “quality” will now assume a greater importance.

As for particular sectors, those REITs whose business is in apartments or industrial properties will be favoured, while those that focus on office and retail will be avoided. “Retail in particular should continue to perform relatively poorly in this environment,” he wrote this week.

is the firm’s top pick. Others with a buy rating include: