Scotiabank analyst Mario Saric outlined a new investment strategy for the REIT sector while providing his top picks,
“We went back to 2003 (20 years), separating the top and bottom-five performing REITs in our universe of coverage annually and compared the respective following year total returns ... The Top 5 best performing REITs (as measured by total return) delivered an average of 15.2% total return the following year, outperforming the Canadian REIT Index and the Bottom 5 REITs by an average of 4.2% and 4.4%, respectively. The frequency of outperformance versus the sector is 65%, almost double the 35% frequency of outperformance for the Bottom 5 REITs. As far as 2022 went, the Top 5 REITs (SGR, MRT, HR, CHP, SMU; average total return of 4%) outperformed the Bottom 5 REITs (TCN,AP, D, MI, GRT; 36%) by 40%, below the historical average 55% spread between Top and Bottom. Unsurprisingly, Bottom 5 performers tend to lag when the performance gap between the two is lower than average (i.e., sub-55%), contrary to the results we are seeing so far this year. Overall, when the Bottom 5 outperform…they really outperform (average 26% total return in the following year vs. 19% for Top 5 when they outperform). In any event, the “Bottom 5″ have started 2023 strong, with an average ~10% return, outperforming the “Top 5″ by ~600 bp and the REIT sector by ~300 bp.”