Investors should be prepared psychologically and financially for the possibility that equities could fall much further if exports through the Strait of Hormuz remain blocked. Hopefully diplomacy will avert a worst-case outcome. The greatest risks in the real estate sector are for companies with weaker balance sheets and those where investors are expecting a beneficial corporate action like major asset sales or M&A. Deals will slow sharply until the macro uncertainty is resolved.

This article updates valuations using 3/27 prices and updates financials for issuers that filed in the past week. There’s no change to trade ideas mentioned a week ago and there have been no major changes at those companies.

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Brandywine’s February call commented on the performance of its Philadelphia assets:

No other office REITs own any Philadelphia buildings so the market may not be well understood by equity investors. The city is at the center of the country’s 9th largest MSA and 20% of the US population lives within 300 miles. Frequent intercity rail service connects to New York City in 70 minutes, Baltimore in 75 minutes, and DC in 110 minutes. Medical research benefits from the regional concentration of 80 degree granting institutions. Children’s Hospital of Philadelphia (CHOP) is the second most highly ranked medical institution in America (US News) and two University of Pennsylvania researchers received a Nobel Prize in Medicine in 2023.

Yardi Matrix compiled data showing that Philadelphia was one of the strongest US markets in 2025 for growth in “Office-Using Employment”:

Seeing Brandywine’s properties gave me confidence that they are well-positioned to continue outperforming within this market and that the REIT deserves a higher market valuation once its balance sheet risk has been addressed.

Topics:

• Financial Profile - Updating my prior analysis for year-end results and commentary

• CBD West Properties

• University City Properties

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Risks related to the Iran War remain high. Equities have not fallen nearly enough to reflect the impact of the oil supply and price shock that would result from extended closure of the Strait of Hormuz. As an example of indicator that would signal extreme panic, investors almost always enjoy a positive 1-year return when buying the S&P500 at 20% or more below its 200dma. On 3/20 the index closed only 1.7% below its 200dma. Investors should be prepared psychologically and financially for the possibility that equities could fall much further.

Hopefully diplomacy will avert a worst-case outcome. The greatest risks in the real estate sector are for companies with weaker balance sheets and those where investors are expecting a beneficial corporate action like major asset sales or M&A. Deals will slow sharply until the macro uncertainty is resolved.

This article updates valuations using 3/20 prices and updates financials for issuers that filed in the past week. Then a brief review of all previously mentioned trade ideas in the context of current market risks.

Topics

• Valuation Comparison ($)

• Canadian Real Estate Trade Ideas ($) D.UN, DIR.UN, DRM, HR.UN, KMP.UN

• Other Trade Ideas ($) AAV, BDN. CSIQ, CSI (497), ELME, NOAH, PFX, STHO

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Markets are hopeful that an extended closure of the Strait of Hormuz will be avoided, but I have not seen any theory how that will be achieved. If it remains closed then oil prices could pass $200/barrel and cause severe economic consequences. Oil prices are inelastic because most refined products are used in transportation where vehicles/planes/ships cannot use any other fuel - if supply drops then the price needs to rise a lot to reduce demand. Equity prices have not fallen nearly enough to reflect the impact of an oil supply and price shock if it happens. Hopefully diplomacy can avert a worst-case outcome. The greatest risks in the Canadian real estate sector are for companies with weaker balance sheets and those where investors are expecting a beneficial corporate action like major asset sales or M&A. Deals will slow sharply until the macro uncertainty is resolved.

Topics

• Sector Overview

• Valuation Comparison ($)

• Quick Takes ($) DIR.UN, DRM, KMP.UN, MRD, MRG.UN, RFA

Sector Overview

The yield premium of cap rates over 10-year bond yields is near the middle of its historical range. Rates have risen about 30bp in the 3 weeks since my last sector commentary and credit spreads for REIT debentures have widened by 10-20bp. Not great …

Most of the Canadian yield curve has moved higher due to higher expectations for growth and inflation. That environment would benefit more economically sensitive properties such as Industrial and Retail. Higher rates are a challenge for low yielding Multifamily assets.

Insiders at 26 of 38 REIT/REOCs were buyers since 10/1/25 and 4 had net insider sales. REIT/REOCs have repurchased $325mm of equity since 10/1 (reported to 3/13) with the largest buybacks at CAPREIT, Boardwalk, Dream Industrial, Riocan, and Dream Unlimited.

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• Entities controlled by GO CEO Josh Gotlib acquired its 5 properties for $2,050mm in 2022. The appraisal value disclosed in GO’s 2025 IPO prospectus was $2,739mm. Is this appreciation realistic?

• GO CEO Josh Gotlib faces two lawsuits accusing him of fraud and breach of fiduciary duties.

This article does not make any recommendation regarding investment in GO Residential and the author has no position in any securities of GO Residential.

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Canadian Real Estate has begun 2026 with a +5.3% total return (XRE a/o 2/20). US REITs are +7.1% and the CAD has appreciated by 0.3%.

Topics

• Sector Overview

• Valuation Comparison ($)

• Quick Takes ($) AP.UN, MPCT.UN, DIR.UN, D.UN, DRM, HR.UN, MI.UN, MRC, MRT.UN, MRG.UN, RFA

Sector Overview

• The yield premium of cap rates over 10-year bond yields is near the middle of its historical range. Lower benchmark rates, lower credit spreads, and solid property fundamentals should lead to lower cap rates in 2026 and an upturn in NAVs.

  

• Canadian interest rates have fallen at all maturities over the past year (CORRA -75bp, GOC 2-year -28bp GOC 5yr -6bp). A steep yield curve signals higher future growth expectations that would be more beneficial to economically sensitive Industrial and Retail Assets. Yields on 2-3 year maturities for high quality REIT issuers have dropped under 3.25%.

  

• Insiders at 26 of 38 REIT/REOCs were buyers since 10/1/25 and 3 had net insider sales. REIT/REOCs have repurchased $278mm of equity since 10/1 (reported to 2/20) with the largest buybacks at CAPREIT, Riocan, Boardwalk, Dream Industrial, and Dream Unlimited.

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Dream Unlimited (DRM) was created in 2003 with $22mm of equity from Dundee Corporation and Michael Cooper. An additional $43mm was invested in 2006. It has paid $438mm in dividends, spent $355mm on share repurchase, and equity has grown to $1,434mm. The rate of value creation has remained one of best among public Canadian real estate companies following spinout from Dundee in May 2013.

Yet as a public company DRM has generated a negative total stockholder return. The share price is still below its split-adjusted $27.30 close on its first day of trading (5/30/13).

Topics

• History of Dream Unlimited - Milestones from 1994-2025

• Ownership and Governance - Founder Michael Cooper owns 43% of the shares and controls 87% of the voting rights. Dream does not have a corporate culture of investment by other executives and directors.

• Corporate Structure - 4 public companies and 6 private funds

• Asset Value - Choose your own adventure. Pick a number from “Standalone Book Value” of $26.72/share to “Illustrative NAV” of $51.68.

• Underappreciated Growth - continued expansion of Asset Management and stabilized Investment Properties have been temporarily obscured by losses on Toronto assets.

• Investment Narrative - Dream has tried too hard to pitch a simple story

• Dream Industrial - the leading Canadian industrial REIT with multiple drivers of continued value creation

• Dream Office - a concentrated portfolio of high quality Downtown Toronto offices benefiting from a strong market rebound. It should consider privatization or seek a new growth strategy.

• Dream Impact - a distressed holder of some high quality assets. Some positive changes are underway. DRM is protecting its exposure by moving up in the capital stack.

• Dream Global - revisiting the hugely successful launch, growth, and sale of an international REIT

The article attempts to cover a lot of ground, but the TLDR is simply the initial table. At its current valuation, DRM’s superior long-term growth provides the best opportunity in the Canadian real estate sector for investors willing to accept the complex scope of the business and volatile reported earnings.

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Star is not going to complete its liquidation by the original goal of March 2027, however progress over the past year makes a 2030 completion realistic. STHO repurchased 0.4mm of shares in 3Q25 and the opportunity for more capital returns should improve as assets are monetized.

See my prior profile for background on the company history and liquidation plan.

Key risks remain opaque governance/incentives and macro (interest rates and housing demand).

Asbury Park

Development is advancing on multiple parcels. Each successful project increases the appeal of the following ones. Compared to expectations from a decade ago, developments have lower density and higher price points. STHO is carrying its Asbury Park assets at $131mm. The hotel assets represent $67mm (undepreciated cost of $91mm).

Changes since my prior article:

The Views at North Shore was acquired by Hovnanian for $12.7mm in November 2025. This might include payment for The Delta parcel since I can’t find a separate sales record for it.

The Delta (formerly Delta Townhouse) is now controlled by Hovnanian which plans to launch presales soon. The marketing website indicates prices begin at $1.1mm.

Surfhouse rental apartments opened to residents last summer. Current availability looks like 20 units out of 226 and the property is offering a 1 month concession on new 13 month leases and 2 months on 18. The project is owned by a Crowdstreet joint venture, but STHO extended a $10mm mezz loan and a guarantee for a $80mm construction loan. The development appears successful so I expect to see a refinancing in 2026 that would repay the STHO loan and relieve the guarantee obligation.

Block 4004 townhouse development proposal was submitted in partnership with Toll Brothers in late 2024. There’s been no subsequent activity. STHO is still the property owner.

Block 3904 proposal was submitted in late 2024 for a development that would have 54 residential units and a parking garage with 333 spaces. There’s been no subsequent activity.

Block 3801 proposal was just submitted in January 2026. The design and density are completely consistent with neighboring blocks.

Block 3803 proposal was just submitted in January 2026. The design and density are completely consistent with nearby blocks (including 3801 proposed)

Remaining (4307, Beach Club, 3902, 4503) show no new activity.

Magnolia Green

Lots within the primary residential development have been nearly all sold. The latest satellite images show remaining red sections have been cleared for building, except for a couple of northern sections waiting for municipal road improvements.

Regional development near Magnolia Green will increase the community’s appeal. HCA is building a 60 bed hospital and medical center. Cloverhill Church is building a large school, church, and sports facility. A third party applied for approval to build 677 townhomes and apartments at Taylor Ridge. Another adjacent 131 acre property on Hull Street Road is reportedly under contract for sale.

STHO is carrying its Magnolia Green assets at $28mm which is certainly below the fair market value of the remaining residential lots, plus 99 acres designated for an Active Adult community and 96 acres Commercial.

Active Adult Community - STHO previously planned a senior community on this parcel, but was unable to partner with an operator in that sector so it received zoning approval in 2025 for a change to an “Active Adult (Age Restricted 55+) Community” of 900 units. The site seems to be available for sale in its entirety rather than through lots or portions.

Commercial - STHO received zoning approval in 2025 to remove restrictions on the building sizes and to allow a portion to used for residential development. A 14 acre parcel is reportedly now under contract for a 240 unit luxury apartment project. Prospects for the Retail and Office portions of STHO’s commercial sites should be improving as all the green spaces above are filled in.

Bagholders

The roster of my fellow shareholders has not changed much and includes several activists.

Disclosures & Notes

At the time of publication I held shares of Star Holdings. This article and disclosure should not be interpreted as a recommendation to purchase any securities and this holding could change at any time. Investors are encouraged to check all of the key facts cited here from SEC filings and other sources prior to making any investment decisions. The author believes all information in the article is accurate as of the date of publication. Any factual errors in the article will be corrected as promptly as possible.

Liquidation History:

• Announced a liquidation plan in August 2025 with estimated total distributions of $17.58-$18.50 per share (LINK)

• Sale of a majority of multifamily assets in November for $1.6Bn (LINK)

• Initial Distribution of $14.67 per share paid in January (LINK)

• Updated and reduced guidance of remaining net assets of $2.35-$2.80 per share (LINK)

Topics:

• Analysis of the Cortland Sale

• Analysis of pending sales

• Analysis of sales under negotiation (including Watergate offices)

• Analysis of remaining sales (including Riverside Apartments)

• Valuation

Company background is in the May 2025 Investor Presentation

Cortland Sale

On 8/4/25 Elme concluded its Strategic Review and announced the sale of 19 properties to Cortland Partners for $1.6Bn (LINK). Jay Parsons shared insights about the portfolio (newer vintage apartments in attractive northern Virginia submarkets) and noted that Cortland passed on 3 properties in Montgomery County MD (possibly due to rent control) and 2 older properties in DC. Moshe Crane profiled the Cortland communities here.

Upon completion of the Cortland sale, Elme filed an 8-K that included financial statements for the sale portfolio and the remaining assets. From this we can estimate a 6.0% cap rate.

Pending Sales

Elme’s 1/23/26 update disclosed agreements to sell 3 of its remaining assets for gross proceeds of $155mm.

Pricing looks attractive, however the single digit disclosure “% of NOI” means that rounding might have a big impact. If each were 1.6% of NOI then then cap rate would be 4.8%, but if each were 2.4% of NOI then the cap rate would be 7.2%.

One of the properties is in Montgomery County MD so rent control is not an insurmountable obstacle.

Sales Under Negotiation

Elme’s 1/23 update disclosed that it “expects to finalize the sales of the two remaining Maryland properties, the one remaining Georgia property and Watergate 600, Elme’s only office property, in the first quarter or early second quarter of 2026.” I infer that the reduction in expected liquidation proceeds reflects the current pricing of these deals under negotiation. This group includes the assets with the most uncertainty - the Maryland properties subject to rent control and the Watergate office.

I suspect that a disappointing outlook for Watergate is the primary reason for the downward revision in guidance.

Watergate 600

This 300ksf Class A office building is in an attractive location adjacent to the Potomac, the Trump Kennedy Center, and the Saudi Embassy. Elme talked about selling it for several years prior to announcing its liquidation plan. Failure to find a deal over that time is a cautionary signal.

• Book Value is $95mm, after a $41mm impairment recorded in 2023

• Occupancy was 82.9% at 9/30 and has been drifting lower

• Largest tenant is Atlantic Media with approximately 140ksf expiring in 2027. AM sold the building to Elme in 2017. AM sold the Atlantic Magazine to Lauren Jobs and the magazine offices moved to a new location in 2022. AM’s primary business is now National Journal, a high end advisory and business intelligence firm. I never heard of it before yesterday, but it is reportedly stable and profitable. If this Loopnet information is accurate, the AM space is available from 11/1/27 and the building’s occupancy could drop as low as 32%.

• EIG Global Energy Partners is another major tenant, occupying 51ksf on the top two floors with an 18-year lease signed in 2019

• Elme commented in 3Q24 that it was signing smaller Watergate leases at $55-67 psf - about in line with the average for Washington DC Class A space ($61.26 per CBRE)

Leasing uncertainty makes the property hard to value. A significant renewal from AM would facilitate a cap rate valuation similar to current book value. If AM leaves then it would become a repositioning value-add play that might be worth $200psf to a buyer willing to invest in upgrades and releasing, or a residential conversion (very viable in this location).

Final Round of Sales

Elme’s 1/23 update explained that it “expects to commence a formal marketing process for Riverside Apartments later this month and to continue the marketing process for the two D.C. properties, with a goal to have these three remaining properties under contract by mid-May. Elme continues to target completion of the sale of all 10 remaining properties by mid-year 2026.”

Value depends heavily on the three building Riverside Apartments complex in Alexandria VA. I suspect that the large size and uncertain development potential explain why it was not included in the Cortland sale.

Riverside Apartments

Occupancy was 95% at 9/30/25 and one month lease concessions are currently being offered. Elme proposed to redevelop the surface parking areas of the 21 acre parcel into new apartments. The REIT is carrying a $30.4mm development asset of costs incurred to date, and it might be worth that, or nothing.

Valuation

Elme has provided almost no disclosures to support its estimate of liquidation proceeds. Management said on the 2Q25 call that all the details would be in the proxy statement, but that only included a list without dollar amounts, and there was no 3Q25 call:

Based on my analysis of pending sales and guesses about expenses, I arrive at valuation range wider than management guidance.

The low end of my range reflects worst case outcomes across the board: 7% cap rate on all remaining multifamily, Watergate sold at a discounted square foot valuation, zero value for the Riverside Apartments development potential, and a full-year of operating expenses in addition to severance.

It would be hard to do worse than that, but the high debt level creates some macro risk if there’s an economic crisis in the few months. The debt costs SOFR+225 which can mostly be covered by NOI now that ELME is no longer paying distributions.

The upside is that management probably has a good handle on the remaining assets to be sold within six months and the midpoint of guidance is $2.58, most of which could be paid by the end of 3Q25 - the initial liquidating distribution came 2 months after the Cortland sale. I’m comfortable with the balance of risk vs reward. Downside is low, and the high end of guidance is not impossible. The high leverage makes it difficult to be too precise about the net amount that can be distributed.

Disclosures and Notes:

At the time of publication the author held shares of Elme Communites. This disclosure should not be interpreted as a recommendation to purchase this security and this holding may change at any time. Investors are encouraged to check all of the key facts cited here from SEC filings, company disclosures, and other sources prior to making any investment decisions. The author believes all information in the article is accurate as of the date of publication.

This article is published free in its entirety because I am new to the story and may have made some errors. Feedback is welcome from anybody who may know additional or alternate details.

This article previews topics that will be of of interest in upcoming earnings reports and includes brief comments on trade ideas mentioned in prior articles.

Topics

• Sector Overview

• Valuation Comparison

• Office Sector with comments of Dream Office and Allied Properties

• Retail Sector with comments on Choice and Primaris

• Industrial Sector with comments on Dream Industrial

• Multifamily Sector with comments on Mainstreet

• Diversified Sector with comments on H&R and Morguard REIT

• REOCs with comments on Dream Unlimited, Morguard Corporation, and Melcor Developments

• Other with comments on Artis, Ravelin, and Dream Impact

• Trade Ideas Recap

Sector Overview

• The yield premium of cap rates over 10-year bond yields is near the middle of its historical range.

  

• The yield curve has steepened with short maturities sharply lower in the past year (CORRA -103bp, GOC 2-year -33bp GOC 5yr -5bp). A steeper yield curve signals higher future growth expectations that would be more beneficial to economically sensitive Industrial and Retail Assets.

  

• Insiders at 24 of 38 REIT/REOCs were buyers since 10/1/25 and 3 had net insider sales. REIT/REOCs have repurchased $179mm of equity since 10/1 (reported to 1/23) with the largest buybacks at CAPREIT, Artis, Boardwalk, and Dream Unlimited.

Trump risk is likely to affect markets again in 2026. Investors repeatedly convince themselves that everything will be calm after the newest crisis is averted. But conflict and drama are essential to Trump’s personality and politics. The Trump Show must introduce one plotline after another. Optimists may ultimately be correct that the USMCA (CUSMA) trade agreement will be renewed this summer, but Trump will only sign a deal after a fight. One commentator said Trump could have gotten everything in the rumored Greenland agreement by just asking. But asking is not winning - it was never going to be an option. Businesses don’t want trade conflict. Investors don’t want trade conflict. But there will be trade conflict, because the weekly premise of the Trump Show is that Trump fights and Trump wins. Mark Carney’s eloquent Davos address triggered Trump’s insecurities over his intelligence and lack of elite respect. Investors should expect a fight that will create a buying opportunity.

Early last year a savvy reader asked: “Why would anybody invest in Canada?” For a decade that skepticism paid off, but in 2025 the TSX beat the SPX by 14 points, Canadian REITs beat US REITs by 7 points, and the Canadian dollar rose 5% vs the US dollar. I think Canada remains attractive, but also heavily exposed to the US so I have been looking for more international ideas. One Hong Kong stock included in my year-end trade ideas is +7% ytd and I will try to post another soon with good liquidity.

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This article reviews 2025 and long-term sector returns and includes brief comments on all trade ideas mentioned in prior articles, subscriber chat, and notes.

Sector Overview

• The yield premium of cap rates over 10-year bond yields is near the middle of its historical range, but the 29bp increase in bond yields since 9/30 has been a headwind for interest sensitive securities. Better than expected Canadian GDP and employment data should support income growth in real estate sectors with greater economic sensitivity (Retail and Industrial).

  

• The yield curve has steepened with short maturities sharply lower in the past year (CORRA -102bp, GOC 2-year -35bp GOC 5yr -2bp). A steeper yield curve signals higher future growth expectations that would be more beneficial to economically sensitive Industrial and Retail Assets.

  

• Insiders at 26 of 36 REIT/REOCs were buyers in 2025 and 4 had net insider sales. After very light activity from May-September, buying picked up recently with notable purchases at Killam and Artis. REIT/REOCs have repurchased $866mm of equity in 2025 (reported to 12/31) with the largest buybacks at Artis (4.9% of market cap), CAPREIT (4.9%), Minto (4.6%), and Primaris (4.4%). Some REITs that were aggressive buyers in 1H25 reported no buybacks in September-November (Riocan, Granite, and Minto). CAPREIT resumed purchases in November and bought $89mm.

Topics

• REIT Economics - Investment property should provide an average base return of 6.5%. Growth initiatives can raise returns to 8-10%.

• REIT Index Returns have averaged 7.0% over the past decade. A simple average of REITs/REOCs produced an above average 2025 return of +13%. The average change in book value per share/unit was +0% so the sector return was entirely due to higher valuations plus dividends.

• Valuation Comparison ($)

• Canadian Real Estate Trade Ideas Update ($) - Dream Unlimited remains most attractive

• Other Trade Ideas Update ($) - Noah, Phenixfin, CSI Properties, Brandywine, Five Points, Ero Copper, Advantage Energy, Cablevision, Star Holdings, Far East Consortium, and Canadian Solar

REIT Economics

REITs are a leveraged investment in rental property. This simple model suggests a base return expectation of 6.5%.

• Property income (cap rate) varies based on the asset class and could be as low as 4% for some multifamily or as high as 10% for some office.

• Interest rate varies based on the credit risk of each issuer and its assets. It can be under 3.5% for high quality short-term debt to 10% or more for distressed situations (RPR and MPCT).

• Admin expense varies depending on scale, efficiency, and structure (internal/external management)

Canadian Retail and Industrial property market conditions are healthy with REITs able to earn attractive spreads over their financing cost. Most Canadian multifamily, Canadian office, and US multifamily markets are challenging with small, or even negative, spreads over borrowing costs. Investor returns are more dependent on rent increases.

REITs can enhance the base property return through appreciation of asset values (discounting future rent increases) and accretive investment in acquisitions, development, redevelopment, and unit repurchases. If successful then these could raise return on equity to 8-10% per year.

REIT Returns

Actual REIT total returns have averaged 7.0% over the past decade. This has lagged the target return of 8-10% due to extended weakness in the Canadian economy, rising interest rates, and decline of REIT equities to discounts.

The S&P/TSX Capped REIT index is the weighted return of the 16 largest REITs and was held back in 2025 by poor returns from Allied and CAPREIT. A simple average of 35 REITs/REOCs had a +13% return with 13 earning over +20%. The average change in book value was +0% so a narrowing of discounts was the most important factor in investor returns. There was remarkably little relation between one year book value change and equity return.

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Shares of office landlord Brandywine Realty (BDN) have dropped to a 15 year low. The REIT has good assets concentrated in Philadelphia and Austin, but a balance sheet burdened by high cost debt and preferred financing. In the next three months the share price is likely to rebound from recent setbacks (index deletion, tax selling etc…) In the next three years the price could recover more strongly to $10 as development projects are stabilized and high cost capital is replaced through asset sales and refinancings, but this potential comes with execution risk and economic risk.

The drop in Brandywine’s share price is a rational reaction to deteriorating cash flow. NOI (property operating performance) has been steady, but FFO and Cash Available for Distribution have dropped due to rising interest expense and financing costs reported through development joint ventures. If the REIT is able to reduce the amount of its debt and the cost of its debt then cash flows and share values can rebound because the underlying property income has not deteriorated.

Topics:

• Index Deletion - removal from the S&P600 will take effect on 1/6/26

• High Cost Debt and Preferred - BDN has almost $1Bn of outstanding debt costing over 8% and preferred obligations with yields into the teens

• Properties - Philadelphia core portfolio is far outperforming market averages

• Development - Philadelphia Schuylkill Yards is extremely attractive mixed-use project, but has yet to find tenants for a recently completed life sciences office building.

• Properties - Austin portfolio is outperforming market averages, but the market is very weak due to an excess of new supply.

• Development - Austin Uptown ATX is an attractive mixed use project, but weak markets for both office and multifamily mean the potential will probably be realized more than 5 years in the future.

• Governance - Brandywine lacks strong independent directors and active shareholders.

• Valuation and A Path to $10 - Brandywine is currently valued at a cap rate of 9.7%. Stabilization of the balance sheet and development projects could drop that to 7% in 3 years enabling shares to rebound to $10.

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This article reviews 6 Canadian Real Estate equities and 3 Other equities that are attractive this month. In early 2026 I’ll publish a review of year-end data and a 2026 outlook.

Sector Overview

• The yield premium of cap rates over 10-year bond yields is near the middle of its historical range, but the 27bp increase in bond yields since 9/30 has been a headwind for interest sensitive securities. Better than expected Canadian GDP and employment data should support income growth in real estate sectors with greater economic sensitivity (Retail and Industrial).

  

• The yield curve remains steep with short maturities sharply lower in the past year (CORRA -104bp, GOC 2-year -41bp). The GIC 5 yr is +3bp yoy.

  

• Insiders at 26 of 36 REIT/REOCs were buyers since 12/31/24 (to 12/12) and 4 had net insider sales. After very light activity from May-September, buying picked up recently with notable purchases at Killam and Artis. REIT/REOCs have repurchased $862mm of equity ytd (reported to 12/12) with the largest buybacks at Artis (5.0% of market cap), CAPREIT (5.0%), Minto (4.8%), and Primaris (4.5%). CAPREIT resumed purchases in November and bought $89mm. Some REITs that were aggressive buyers in 1H25 reported no buybacks in September-November (Riocan, Granite, and Minto).

Topics

• Valuation Comparison

• Canadian Real Estate Ideas Into Year-End - High conviction in Dream Unlimited

• Other Ideas Into Year-End - High conviction in Noah Holdings

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Canadian REITs have been a safe haven in 2025 with a total return of +8.3% (XRE to 11/26) after a decline of only -6.7% when US tariff fears peaked in April. US-dollar based investors earned an additional +2.5% through Canadian dollar appreciation. US REITs’ total return has picked up to 5.3% in 2025 due to optimism about lower interest rates.

Key Ideas

• Office Properties in prime locations should deliver improved performance in the next 12 months. Major employers need more space to accommodate increased office presence. Successful leasing in 2024-2025 will deliver improved cash flow in 2026-27 after free rent periods expire. Improving property fundamentals and debt availability support a rebound in transaction volumes which should lead to increased confidence in REIT equity values.

• Retail REITs delivered strong operating results with vacancy rates at long-term lows. Landlords are are building value by adding density at existing locations where they already own land and have an established market presence. High occupancy also enables them to improve productivity by curating their tenant list. Bankruptcies like Hudson Bay and Toys R Us (likely) create more opportunities than problems.

• Industrial REITs trade at lower valuations than most US peers despite superior Canadian fundamentals.

• Multifamily REITs face continued uncertainty due to loss of demand from population growth while government policies promote construction of new supply.

• H&R disbanded its Special Committee after failing to find a satisfactory transaction for the entire REIT. Management announced agreements to sell $1.5Bn of assets (after guiding 11 days earlier to $2.6Bn of sales). The REIT was unable to disclose any details of the additional sales or implications for its future strategy during the 3Q25 conference call. The uncertainty frustrated analysts and investors leading to a drop in the unit price (see 11/17 article for additional comments).

• Dream Unlimited offers the best long-term value in the sector at its 11/21/25 price, but investment in an insider-controlled company requires acceptance of the strategy and time horizon of the controlling shareholder. Catalyst-oriented investors should look elsewhere.

Sector Overview

• The yield premium of cap rates over 10-year bond yields is near the middle of its historical range (and the GOC yield is +1bp since 9/30/25). However there has been a significant curve steepening with short-term yields corresponding to most REIT debt issuances sharply lower in the past year (CORRA -155bp, GOC 2-year -91bp, and GOC 5-year -53bp).

  

  

• REIT bond yield spreads continued to improve in 9M25 with spreads for many issuers 150bp below 12/31/23 levels and most 3-4 year debt yielding under 3.5%. REITs with access to the unsecured public debt market can refinance on reasonable terms and invest with a positive return on their leverage. Few REITs are in a position to raise equity at current valuations, but North American REITs in every sector have been able to step up capital recycling through sale of non-core assets and reinvestment into acquisition or development of properties most suited to corporate strengths.

• Insiders at 25 of 37 REIT/REOCs have been buyers since 12/31/24 (to 11/21) and 6 have had net insider sales. After very light activity from May-September, buying picked up in recent weeks with purchases at 15 REITs/REOCs and net sales at 2. . REIT/REOCs have repurchased $773mm of equity ytd (reported to 11/21) with the largest buybacks at Artis (5.8% of market cap), Minto (4.6%), Primaris (4.5%) and Interrent (4.4% of market cap). Some REITs that were aggressive buyers in 1H25 reported no buybacks in September-October (Riocan, CAPREIT, Granite, and Minto).

Topics

• Valuation Comparison

• Office Section with perspective from US peers and comments on Allied Properties, Dream Office, Ravelin, and True North

• Retail Section with a recap of development and investment activity

• Multifamily Section

• Industrial Section with comments on Granite and Dream Industrial

• Diversified Section with comments on H&R, Artis, and Morguard REIT

• REOCs with comments on Dream Unlimited, Melcor, and Morguard Corporation

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Canadian REITs have been a safe haven in 2025 with a total return of +8.4% (XRE to 11/14) after a decline of only -6.7% when US tariff fears peaked in April. US-dollar based investors earned an additional +2.6% through Canadian dollar appreciation. US REITs’ total return has been only +3.5% in 2025.

• The yield premium of cap rates over 10-year bond yields is near the middle of its historical range (and the GOC yield is +4bp since 9/30/25). However there has been a significant curve steepening with short-term yields corresponding to most REIT debt issuances sharply lower in the past year (CORRA -153bp, GOC 2-year -67bp, and GOC 5-year -31bp).

  

  

• Insiders at 26 of 37 REIT/REOCs have been buyers since 12/31/24 (to 11/14). Purchases dropped sharply from May-October, but has started to pick up in recent weeks. REIT/REOCs have repurchased $770mm of equity ytd (reported to 11/14) with the largest buybacks at Artis (5.6% of market cap), Minto (4.6%), Primaris (4.5%), and Interrent (4.4% of market cap). Some REITs that were aggressive buyers in 1H25 reported no buybacks in September-October (Riocan, CAPREIT, Granite, and Minto).

The sector remains attractive with many companies able to provide favorable returns through ownership of quality properties and organic growth strategies.

Valuation Comparison

3Q25 results have been reported by 36 of 37 REITs and REOCs. Retail and Industrial results have been strong. Multifamily has been soft due to high supply and weaker demand. Office has been mixed with Dream benefitting more than Allied from Return-to-Office demand this autumn.

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It’s hard to articulate a bullish argument for H&R when the REIT is unable to explain what business plan it will follow and what assets it will own. On Friday’s conference call management made no formal comments about the Special Committee process and tried to say as little as possible in Q&A, while promising more disclosures by year-end:

Key points from 3Q25 results:

• $865mm of assets were marked as “Held For Sale” based on board approval for deals with a high probability of closing within one year. The list includes Hess Tower which is 2/3 leased to Chevron for 10 years, but largely vacant following Chevron’s acquisition of Hess. It also includes 2 Toronto office locations previously seen as condo redevelopments, but management says buyers are now more interested in continued office use.

  

• $420mm of fair value losses in 3Q ($753mm ytd) hopefully bring carrying values to levels where transactions can be executed. I had hoped that was the case after $281mm in 2Q25, but evidently the bids received through the Special Committee process were lower.

• Residential SPNOI was -3.4% yoy. One year ago management expected a strong rebound in rents and income by 2026 as a temporary Sunbelt supply surge was absorbed. A weak labor market has slowed growth in demand and all US multifamily REITs have negative ytd total returns:

  

  Lantower is offering one month free rent on new leases at most properties, and higher concessions at two in the Dallas area (West Love and Midtown)

  

• Fair value losses caused H&R’s leverage metrics to rise and the call explained that debt reduction was the first priority for asset sale proceeds.

• Total sales of $2.6Bn expected to be announced by year-end exceed the 9/30 “Held For Sale” by $1.735Bn. Everybody wants to know what’s in this balance.

Valuation Perspectives

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A few key details extracted from the opaque 565-page merger proxy:

• Pro-forma Book Value per share is $10.39. Artis CEO Samir Manji consistently described NAV as a Key Performance Indicator for Artis, but this immediate merger dilution of 20.0% is never disclosed.

  

• Pro-forma EPS is negative. This contradicts Artis Chairman and RFA CEO Ben Rodney’s claim that the pro forma dividend is “backed by real recurring cash flow and profitability”. It does not look like an opportunity that will draw attention from new investors.

  

• The merger Financial Projections are aspirational and do not include any multi-year model for the post-merger entity. Even if it achieves 3X growth in assets, 3X growth in ROE, and 5X growth in Net Income, the business will still not reach 65% dividend payout ratio.

  

• The members of the Artis Special Committee will receive cash payouts totaling $1,474,452 in exchange for their Artis Deferred Units if the merger is completed. They recommend approval of the transaction.

  

• Artis board concluded that “it was unlikely that any other party would be willing to propose an executable transaction on terms more favourable, in the aggregate, to Artis”, but did not consider an orderly liquidation of the remaining real estate portfolio. The RFA transaction assumes that proceeds of $1.3-$1.5Bn can be realized over 3-5 years and invested in the bank. That same amount could presumably have been returned directly to Artis investors.

• The Exchange Ratio of 68% Artis and 32% RFA was “holistically determined by utilizing market-standard valuation techniques including trading values, recent precedent transactions and discounted cash flow values”, but none of the inputs for the respective valuations of Artis and RFA are disclosed in the proxy. While Artis investors are suffering immediate 20% dilution to BVPS, existing RFA holders are receiving a 198% premium.

  

The decline in Artis unit price since the merger announcement reflects the unwelcome shift in business model, failure to define the value of the REIT, and failure to define the value of the transaction for investors. It’s possible that the combined business could achieve its goals over a lengthy transition period, however a disproportionate share of the potential merger benefit appears to be paid upfront to RFA. High volume and a recent price jump in the absence of any material developments suggest that an activist may be accumulating a position to push for an alternative. 27mm units have traded since the 9/15 merger news (compared to a float of about 57mm) so there has been considerable turnover of the investor base.

The merger has revealed willingness by the Artis Board and management to abandon the current failing business plan and sell a majority of its assets. If the RFA merger is not completed then those proceeds could be returned to investors and deliver a value approaching the Artis NAV of $12.98 over time.

This article is freely available. Please share with anybody who might be interested.

RFA Capital

The merger presentation compared RFA to the broad Canadian banking sector, but it has a niche business that primarily uses brokered GICs to fund purchase of brokered Alt-A mortgages. The risks of weaker credit history and income documentation are balanced by low average LTV (64.8% at 6/30) and higher interest rates. Some basic RFA Bank data:

• Loan portfolio composition:

  

• Net Interest Margin:

  

• Allowance for Credit Losses:

  

The downturn in the Canadian housing market raises the risk of loan losses, but RFA has continued reporting profits. 68% of the loan portfolio is in Ontario and the TRREB Composite benchmark GTA home price is 30.5% below its March 2022 peak. The proxy does not mention whether the Artis Special Committee considered the risk of rising credit losses in the existing RFA portfolio.

The premise of the merger is that RFA has a platform that could grow profitably with access to additional capital. That may be completely correct! But the proxy provides no explanation for the valuation attributed to RFA in the transaction.

Artis

The RFA merger is the second unexpected and unwelcome strategic surprise from Artis. In March 2021 the REIT announced a Business Transformation Plan under which it would sell a portion of its existing portfolio and invest the proceeds in real estate value investments. It was best-in-class creative clearly-defined unconventional pioneering strategic high-conviction dramatic patient thoughtful calculated opportunistic disciplined bold simpler stronger and will get the flywheel churning in a direction that grows our intrinsic value and cash distributions to our owners.

The value investing plan featured significant stakes in Cominar, Dream Office, and First Capital that lost money in aggregate. Artis has a leftover portfolio after selling its most marketable assets:

• Industrial 44 properties, of which 25 are in Winnipeg and 16 in AB+BC+SK

• Office 30 properties, of which 19 are in Minnesota and Wisconsin

• Retail 18 properties in AB+SK+MB

• Residential 1 property in Winnipeg

The only common theme connecting many of these remaining holdings is that the pre-2021 Artis management team was based in Winnipeg and especially fond of assets in that area. None of them are especially attractive or valuable. There’s no strategic value to holding them in a single entity and there’s no logical buyer for the entire portfolio. It seems wise and hopefully feasible to realize proceeds of $1.3-1.5Bn over 3-5 years as envisioned in the RFA merger transaction. The question for the Artis Board and unitholders is what to do with the proceeds.

Unitholder Vote:

The RFA merger will require an affirmative vote from 2/3 of outstanding Artis units. The largest holders are:

At the unitholder meeting, units held by Artis Chairman Ben Rodney will be excluded because he is deemed an interested party due to his simultaneous role as CEO of RFA. I was told that Ben Rodney was appointed to the Artis board at the request of Steven Joyce. Joyce owns 18.9% of Artis and also owns 30.9% of RFA, but is not deemed an interested party for purposes of approval of the transaction. Perhaps that can be challenged. Sandpiper has no stake in RFA.

If Edgepoint votes in favor of the deal then it will certainly go through. If they oppose the current deal terms because they don’t like losing money then it could be difficult for Artis to reach 2/3 approval. Participation in votes with a lot of retail holders tends to be low.

Background Documents:

Merger Announcement 9/15 Press Release

Merger Announcement 9/15 Presentation

Merger Announcement Conference Call Transcript (no questions allowed)

Merger Proxy filed 11/10

Disclosures and Notes:

At the time of publication the author held units of Artis REIT. This disclosure should not be interpreted as a recommendation to purchase this security and this holding may change at any time. Investors are encouraged to check all of the key facts cited here from SEDAR filings and other sources prior to making any investment decisions. The author believes all information in the article is accurate as of the date of publication.

A link to this article was sent to Artis Investor Relations at the time of publication. As a current Artis unitholder I do not wish to spread misinformation or misunderstanding about the REIT. If they can point to any factual errors using information publicly available at the time of publication then corrections will be made as promptly as possible.

Canadian REITs have been a safe haven in 2025 with a total return of +8.8% (XRE to 11/7) after a decline of only -6.7% when US tariff fears peaked in April. US-dollar based investors earned an additional +2.0% through Canadian dollar appreciation. US REITs’ total return was only +4.4% in 2025.

Sector Overview

• The yield premium of cap rates over 10-year bond yields is near the middle of its historical range (and the GOC yield is unchanged since 9/30/25). However there has been a significant curve steepening with short-term yields corresponding to most REIT debt issuances sharply lower in the past year (CORRA -154bp, GOC 2-year -63bp, and GOC 5-year -27bp).

  

  

• Insiders at 25 of 37 REIT/REOCs have been buyers since 12/31/24 (to 11/7), however buying dropped sharply since April and there were very few purchases in recent weeks. 4 Issuers had net insider sales. REIT/REOCs have repurchased $770mm of equity ytd (reported to 11/7) with the largest buybacks at Artis (6.1% of market cap), Minto (4.7%), Primaris (4.5%), and Interrent (4.3% of market cap). Some REITs that were aggressive buyers in 1H25 reported no buybacks in September-October (Riocan, CAPREIT, Granite, and Minto).

The sector remains attractive with many companies able to provide favorable returns through ownership of quality properties and organic growth strategies. However, the drop in insider and repurchase activity suggests that investors can be patient and reserve some capital to take advantage of bargains that are periodically created. Uncertainty following Trump trade threats triggered all but one of the Trade Ideas described in my 10/10 article; updates are included below. Trump’s falling approval rating is leading to nearly daily efforts to shift the US economic narrative, sometimes with tariff threats, but his willingness to pressure trade partners seems very limited due to the adverse impacts of confrontation on the stock market, business, and consumer confidence.

Topics

• Valuation Comparison

• Quick Takes (Artis, Dream Office, Dream Industrial, Granite, Allied Properties, H&R, Morguard REIT, Melcor Developments, Dream Unlimited, and Dream Residential)

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Thoughtful analyses are pointing to the rising dependence of the US economy on AI investments, consumer spending boosted by the wealth effect of AI equities, and the near impossibility of achieving a positive return on AI capex. The late 1990s internet/fiber/dotcom bubble is frequently cited as a comparison. Consumer Staples was the only S&P500 sector to deliver a positive total return in the subsequent bear market:

Calling market tops is difficult because there’s rarely a clear trigger for the decline. Even for some time past the peak, the drop can still be seen as a healthy correction. Looking at the dotcom crash from a wider time horizon shows that missing the final year of the rally and holding out-of-favor cyclical value sectors (Materials, Energy, and Financials) earned a positive return through the bear market and initial recovery. The adverse impact of the recession was more than offset by the benefit of the shift from restrictive to accommodative monetary policy (Fed funds rate fell from 6.5% in 2000 to 1.0% in 2003).

The AI equity bubble poses a significant risk to investors in the sectors directly exposed, but also to the broader S&P500 index. The 1999-2003 experience shows that investors can preserve capital and earn attractive returns at lower risk through holding sectors that lagged the bull market, but will benefit from lower interest rates:

Opportunities:

• Real Estate: I have written frequently about the sector, and especially Canadian real estate (Articles, Notes, Subscriber Chat). Values will be enhanced by falling interest rates and valuations will been enhanced by improving investor sentiment. Recent insider and corporate buying has been limited so I think a buy/add on weakness mindset is best right now and suggested attractive equities and price levels in my most recent article.

• Energy: I shared perspectives on the Energy sector in April and commented on two Canadian E&Ps conducting strategic reviews. I continue to hold both stocks and expect favorable outcomes to their reviews, however I feel neutral about the near-term prospects for the sector. Outperformance for both stocks that I profiled has already priced in some of the potential deal benefits.

• Emerging Markets: This group proved a very high return in 1999 due to investor risk-on sentiment, gave up nearly all the gain in the bear market, but then recovered to new highs by the end of 2003. A long period of underperformance to 2025 has left EM equities at low starting valuations (MSCI EM forward P/E of 13.99 vs 20.39 for MSCI World) and they will benefit from lower US interest rates, easier US monetary policy, and a weaker US dollar). My 2024 article about Hong Kong landlords suggested that HongKong Land was most attractive and it is +93% since then on a price only basis while parent Jardine Matheson is +69%. Volatility may be high, but I believe many multi-year opportunities remain in this area and will try to post more often about them.

  

  

Disclosures & Notes

At the time of publication the author held shares of Jardine Matheson. This disclosure should not be interpreted as a recommendation to purchase or avoid any security and this holdings could change at any time. The author believes all information in the article is accurate as of the date of publication. Any factual errors in the article will be corrected as promptly as possible.

You can use this Stockcharts link to compare S&P Sector total returns over different time periods.

Canadian REITs have been a safe haven in 2025 with a total return of +10.2% (XRE to 10/10) after a decline of only -6.7% when US tariff fears peaked in April. US-dollar based investors earned an additional +2/.7% through Canadian dollar appreciation. US REITs’ total return was only +2.2% in 2025, and negative for international investors due to the declining US dollar.

Sector Overview

• The yield premium of cap rates over 10-year bond yields is near the middle of its historical range. The drop in GOC bond yields (-44bp from July peak and -26bp since 9/2) increases the investor appeal of REIT equities and also improves REIT cash flows by lowering borrowing costs. If the lower yields were attributable to significant economic slowdown then occupancy and rents might suffer, however Canada’s September labor survey showed showed surprisingly large employment gains.

• REIT bond yield spreads continued to improve. Unsecured REIT debt issues are nearly all trading at yields under 5% and many are below 3.5%. Quality issuers can refinance on reasonable terms and invest with a positive return on their leverage.

• Insiders at 25 of 37 REIT/REOCs have been buyers since 12/31/24 (to 10/10), however buying dropped sharply since April. 4 Issuers had net insider sales. REIT/REOCs have repurchased $762mm of equity ytd (reported to 10/10) with the largest buybacks at Artis (6.1% of market cap), Minto (4.6%), Primaris (4.6%), and Interrent (4.3% of market cap). Some REITs that were aggressive buyers in 1H25 reported no buybacks in September (Riocan, CAPREIT, Granite, and Minto).

The sector remains attractive with many companies able to provide favorable returns through ownership of quality properties and organic growth strategies. However, the drop in insider and repurchase activity suggests that investors can be patient and reserve some capital to take advantage of bargains that are periodically created by macro news.

Topics

• Valuation Comparison

• Trade Ideas (Artis, H&R, Dream Unlimited, Dream Office, Allied Properties, Morguard REIT, Dream Industrial, Multifamily)

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