Newspaper article The Canadian Press

Choice Properties Makes TSX Debut as Rising Bond Yields Push REIT Sector Lower

Newspaper article The Canadian Press

Choice Properties Makes TSX Debut as Rising Bond Yields Push REIT Sector Lower

Article excerpt

Choice Properties makes trading debut

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TORONTO - Loblaw's new real estate investment trust made its debut on the Toronto Stock Exchange on Friday, as expectations of rising bond yields pushed the trust sector lower.

REITs, which are sensitive to interest rates, have been under pressure in recent months amid predictions that the upward trend in interest rates is likely to continue after years of lingering near record lows.

But units of Choice Properties Real Estate Investment Trust (TSX:CHP.UN) traded near their initial offer price of $10 on Friday, which one analyst says is a sign that the stock was properly priced.

Shortly after markets opened, Choice Properties was trading at $9.90, down 10 cents. But the units fluctuated throughout the day, before ending Friday at $10.

"That means it was pretty well priced to reflect the current market conditions, which have been pretty weak," said Brendon Abrams, an analyst at M Partners Inc.

Rising interest rates hurt trusts by increasing their cost to borrow money and making their units a less attractive investment compared with bonds.

Given that the sector is down by about 1.5 per cent today, Choice Properties is actually outperforming the group, Abrams said.

He said the trust has a strong, geographically diversified portfolio with long leases.

The fact that Loblaw (TSX:L) is the main tenant can also be seen as a positive, said Abrams, because the grocery store business is generally quite stable, so defaults on the leases are unlikely.

But, Abrams added, some people prefer a more diversified tenant mix because even big, stable companies can experience problems and go under.

And Loblaw's large ownership stake -- approximately 83.1 per cent on a fully diluted basis -- could be a deterrent for some institutional investors, said Abrams.

"If you have a broad base of investors, where everyone feels they have an equal say, then the shareholders can exert more influence on the stock and make it perform better, push it when it needs to be pushed," he said. …

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