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Dillingham touts stability of real estate picks

swon@globeandmail.com

What are we looking for?

Ideas from the pros.

It's worth checking out the top holdings of money managers to get stock tips or more insight into their mutual funds. Today, we look at CIBC Canadian Real Estate Fund at cibc.ca.

About the fund

The $44.6-million real estate equity fund has been run by Charles Dillingham of Morguard Financial Corp. since 1997. The fund gained 34.5 per cent for the year ended July 31, compared with 29.3 per cent for the S&P/TSX Capped Real Estate Index. Over 10 years, it has an annualized return of 9.1 per cent versus 6.2 per cent for the index.

Mr. Dillingham looks for firms or real estate investment trusts with quality management that are being responsible with their balance sheets, debt and payout ratios. "Right now, we think the value of the yields being produced by real estate securities offer very good value," he said. "We are bullish to the extent that the current yields are a safe source of revenue for the average investor."

Mr. Dillingham isn't upbeat to the extent he expects big rent increases next year. "I am not bullish that there is a whole lot of growth out for a while, but I don't think there is much downside either. I think we are in a stable environment with high yields and secure returns."

What did we find?

Many securities are trading close to 52-week highs.

Despite the fact that Brookfield Asset Management Inc. has a low yield, Mr. Dillingham is a big fan of this diversified holding company with interests in real estate as well as hydro and infrastructure. "It has big cash reserves and finances its subsidiaries," he said.

Mr. Dillingham likes the fact that Brookfield has "global exposure" with property in North America and also in Britain and Australia. "They also control part of Brookfield Office Properties REIT in Canada," he said. "That is probably the best portfolio of offices in Canada. They have fingers all over the place. But this stock is for patient money - the long-term investor."

He also sees potential in Killam Properties Inc., a real estate company focused on multi-family residential properties in the Atlantic provinces. It has a dividend yield of more than 6 per cent, but also a payout ratio of 86 per cent so it is earning everything that it is distributing, he said.

H&R Real Estate Investment Trust, which has office, commercial, and retail properties in Canada and the United States, plans to increase its distribution every three months for the next six or seven quarters to bring its yield up to 5 or 6 per cent if everything stays the same, he said. But H&R has low debt and a 63-per-cent payout ratio so it is in a "beautiful position" to grow and become the conservatively well-run REIT that it used to be, he added.

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Top 10 holdings of CIBC Canadian Real Estate Fund at July 31
Company Symbol Price as ofAug. 20 ($) 52-wk high ($) 52-week low ($) YTD price chg (%) PE Ratio % Yield Market cap ($) Volume
Canadian REITREF.UN-TSX29.8030.7023.5110.1017.64.71,978,375,75058,370
Simon Property Group*SPG-NYSE88.9794.4958.3610.3102.725,799,520,6002,231,536
Boardwalk REITBEI.UN-TSX43.0743.6733.7017.3541.84.22,272,058,96132,663
Brookfield Office PropertiesBOX.UN-TSX20.421.5012.844.8630.94.61,843,140,0002,890
First Capital RealtyFCR-TSX14.1914.9410.634.0831.55.71,362,884,14188,997
H&R REITHR.UN-TSX18.5518.7312.2523.3740.34.52,670,449,857164,076
Killam Properties Inc.KMP-TSX9.079.506.575.1106.2405,932,39421,875
Pure Industrial Real EstateAAR.UN-TSXV3.824.002.7513.4321.2829,815,9067,400
Vornado Realty Trust*VNO-NYSE81.0686.7953.2415.7671.13.214,745,624,6001,053,846
Brookfield Asset Mgt.BAM.A-TSX26.7027.5821.3813.8935.1215,350,803,349580,942
Source: Globeinvestor.com * in U.S. dollars

© 2007 The Globe and Mail. All rights reserved.

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