Canadian Real Estate has delivered a +5.6% ytd total return (XRE a/o 9/1). US REITs are +10.0%, and the CAD is -1.2% vs USD. This report profiles two companies that are comfortable holds for a 5+ year horizon and updates previous trade ideas. Sector commentary is brief due to lack of time and absence of major changes.
“Living next to [the United States] you is in some ways like sleeping with an elephant. No matter how friendly and even-tempered is the beast, if I can call it that, one is affected by every twitch and grunt.” - Pierre Trudeau
The US is no longer “friendly and even tempered”. The Iran War, unsustainable fiscal deficits, trade conflict, and AI mania have huge impacts on the Canadian economy and financial markets. Investors can try to profit in several ways:
Correctly forecast all of those factors. Investors can fall into a trap of trying to quickly master each topic that dominates news for a month. It can consume every waking hour, and it’s extremely difficult to have an analytical advantage because so many genuine experts are involved in each field.
Forecast nothing and fade the extreme swings in investor sentiment.
Invest in well-managed companies with the operational and financial strength to survive crises and take advantage of opportunities that may arise.
I don’t think of it as a forecast, but I believe investors are undervaluing the possibility that AI mania crashes, US moves towards fiscal consolidation (more likely under divided government), US interest rates fall, the USD falls, and real estate rebounds (outside of AI beneficiaries like data centers and NY/SF residential).
Topics:
Sector Overview
Institutional Failures in the GO+HR merger
Equities To Hold Through The Cycles ($) Two profiles
Valuation Comparison ($)
Office Sector ($)
Multifamily Sector ($)
Industrial Sector ($)
Retail Sector ($)
REOCs ($)
Trade Ideas ($)
Sector Overview:
The yield premium of real estate cap rates over 10-year bond yields is under pressure due to the sharp qtd rise in bond yields.
Canadian yields are still at least 100bp lower than the US at every maturity. For real estate investors, Canadian property offers a positive return over financing cost, but US property buyers may get little or even negative return on leverage. Stability of the Canadian dollar despite a rising interest rate gap hints at greater international confidence in the Canadian economy and institutions.
Insiders at 20 of 34 REIT/REOCs were buyers since 1/1/26 and 7 had net insider sales. REIT/REOCs have repurchased $506mm of equity since 1/1 (reported to 8287) with the largest buybacks at Boardwalk (6.5% of market cap), Clarke (3.7%), Dream Industrial (2.5% of market cap), Killam (2.2%), and CAPREIT (1.4%).
Institutional Failures
Canadian brokerage firms were highly compensated through underwriting and advisory fees for their failure to investigate suspicious aspects of the GO Residential management, numbers, and narrative. Fees and other expenses related to last year’s $500mm IPO were $57mm. Fees and expenses related to this year’s $37.5mm bought deal were $3.1mm.
On H&R’s 8/13 conference call Tom Hofstedter enthused about his GO deal: “CIBC has been working on this for close to 2 years”. They will undoubtedly be due for a big payday if it closes, and maybe even if it doesn’t.
I wrote about GO Valuation and fraud concerns in March 2026 and again in April 2026. If you’re a free subscriber and would have benefitted from that information then consider moving up your subscription level.