The S&P/TSX Composite Index is down 600 points this Monday morning. Time to go shopping. But what to get? I was nodding my head in agreement when Canadian Capitalist wrote in his Jan. 9 post that Real Estate Investment Trusts [REITs] were looking quite cheap. With today’s sell-off, they would seem to be even bigger bargains.
The yield on the iShares Canadian REIT Sector Index exchange trade fund [ETF] as of noon sits at 7.2% (based on iShares data), about 350 basis points (i.e. 3.5%) above the yield on 10-year Government of Canada bonds. That kind of premium hasn’t been seen since the late 1990s.
Also many REITs are trading below net asset value: in a research note released about two weeks ago, Scotia Capital analyst Himalaya Jain said the REITs he covered were priced an average 8.5% below net asset value. As of Monday, they are probably more than 10% below.