REIT opportunities around the arena

all the markets once again obsessed with the outlook for interest rates and that's something that anyone who's investing in real estate has to think about could be your own home could be investing in real estate stocks as well and when we look at the Canadian stock market over the last year we have seen.

Underperformance from some of the real estate related stocks in part because of the new interest rate reality we even today were talking about some of the office vacancies in a market like Toronto right now so there have been some headwinds what should you think about when in investing in publicly traded real estate plays let's check in.

With K Russo he's managing partner and head of Global Securities hazelview Investments longtime real estate Watcher nice to see you um so I guess right now for people who are investing in real estate related stocks what is the number one thing they have to be thinking about well you hit the nail on the head interest rates has been the biggest.

Headwin over the last couple years and it's not just Canadian real estate socks it's us Europe Asia and we obviously cover and invest in the entire world world uh you know real estate companies uh the biggest headwin has been interest rates obviously the cost of capital has gone up and expenses have gone up and also the overall office negativity.

Around work from home and what that's doing the vacancy as you pointed out so I think those those negative two negative sentiments have actually left us in a position where the underperformance has been so large that we're trading at alltime high discounts to where private Market values are trading as well as relative to equity.

Markets and we we haven't seen these levels since the financial crisis and covid uh and we also saw that recovery as interest rates started to come down that recovery started to happen over the next one to two years so we think you know as you heard from dawn earlier today as interest rates do sort of stop becoming a headwin and potentially.

Become a Tailwind as we see some cost cutting we think that sets us up for some significant outperformance over the next couple of years you know it's interesting you talk about public versus private obviously much of the world's real estate state is in the hands of large very Savvy Global Investors one case that was even made here on B&M.

Bloomberg for the real estate sector investing in it uh in the publicly traded real estate names is that you've got these big firms that are always hunting around and if they see the value that might be unlocked I suppose if if the public market is not feeling they want to pay up right now there is that looming possibility.

That the people that make their livelihood on this will jump in is that is that a consideration that that's one of the biggest considerations right I mean you know Buffet coined the phrase the stock market just tells you what people are willing to pay today it doesn't mean it's the value of the underlying assets and the advantage we.

Have investing in public real estate is that you have this massive private real estate that tells you generally where valuations are and you've got so much Capital there that's constantly looking for other opportunities that when you see these these discounts on the public market Market they typically don't last very long because those buyers come into.

The public market and take over these companies to look for attractive pricing why would you pay fair price in the private Market if you can buy something on sale in the public market so we've seen a lot of m&a and Acquisitions happen over the last couple years and we think we're going to see more of that going forward okay you've come to the.

Table with a few investment ideas just to give people an idea of how the landscape works I'm going to go through a few of them I'm going to start with an American listed um named CBR only because they're in the headlines this morning because they track all the trends around what's happening in the H office market so they were the ones to.

Say that in the Toronto area that that vacancies are up what is it about their business I guess sort of it reminds us that there's all sorts of real estate related companies that are publicly traded so think about c as being in the Consulting business so you've got owners of real estate they're trying to figure out what to do how do I lease my.

Property how do I deal with vacancy how do I improve it how do I rent inovated how do I make it more attractive and more valuable in the future and that's when Siberia comes in they they operate the assets for you day-to- day they will help you think about where to spend Capital to improve your assets so you can make it more attractive to tenants.

So that you can get higher leasing revenue and if at the end of the day from a CBR cbr's perspective whether the tenants uh leave or go whether they pay more or less uh at the end of the day CBR gets paid either way okay yeah I know that's it it it's good look bottom line it's good to know the fundamentals of a business U even if it's uh uh more.

Broadly speaking associated with real estate one of the other things that came up today was Canada's aging population um and Chartwell was an example of a name that actually recently came up on Market call that's the name that you're watching too it definitely is ultimately real estate's about demand and supply and we think charell has one of the best.

Fundamental backdrops of demand and Supply if you look at the demand side of the equation obviously aging popul you you you said it the the average growth of the 65 plus cohort population in Canada is expected to be over 3% between now and 2030 the existing population growth is only 1% so that's 3x that population growth and at the.

Same time if you look at Supply because of higher interest costs because of higher material costs higher labor costs the new supply of new healthcare's facility has dramatically declined by a third so it's growing at 1% where it's been 3 to 5 % so this out demand outstripping Supply is setting them up to have you know a great recovery in.

Occupancy and ultimately better cash flow growth we actually expect to see their free cash flow growth grow by over 30% this year aging populations is a global story quite frankly our story of population growth is driven by looking around the world and seeing how other economies are dealing with it too so it's good to talk about other markets.

That maybe have similar businesses in Australia you're tracking a company that has more than a 100 retirement communities that's right tell us more about this one yeah so they've got uh you know similar demand Supply fundamentals with an aging population uh but what they do is they sort of have are a step below the senior housing.

Facility so before you go to a nursing home where you need some medical support and and and more help uh what we're seeing is a aging population 55 plus that wants to sort of live in these communities that offer a lot of amenities offer an active Lifestyle the ability to share different Hobbies with uh people that are are their own age and.

So we're seeing these attractive communities become a huge driver of where people want to ultimately go as they retire they're retiring younger and they're retiring with more capital and they have the ability to spend that capital on lifestyle and that's where inia comes in they've got you know their demand is so high that their occupancy.

Is actually 100% today and their growth going forward is going to be driven by a their rent are inflation protected so they go up by the pace of inflation and they are building over 6,000 new units on top of a base of 15,000 units today wow and Genie has Ina in Australian trading real quickly we've talked a little bit about you know you mentioned.

Warren Buffett he started investing in Japan recently sparked a big conversation around the Japanese Market you've been tracking a real estate company based in Japan this is a hotel operator a lot of properties what tell us a little bit more about this one yeah it's Japan Hotel Reit and affect ly we believe they're setting up for a.

Significant recovery in the Chinese tourism if you look at Chinese tourism in Japan it was the largest by far um driver of tourism in Japan it still down a fraction of where it was preo levels whereas all the other tourism Singapore us Korea have all are all now greater than where they were pre-co levels in terms of Japanese tourism and that's a.

Function of until last August the Chinese government was still not allowing large tour groups to go to Japan that changed in August and that's driving a ton of traffic back we're seeing a a huge acceleration in Chinese tourists going back to Japan and we think that this company is set up with the right assets and the right locations.

And the right amenity mix to take advantage of that increase in occupancy and ultimately increase in in rent over the long term so we see that as a great recovery story over the next 12 to 24 months

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