Dennis Mitchell, chief executive officer and chief investment officer of Starlight Capital in Toronto. Illustration by Joel KimmelThe Globe and Mail
Money manager Dennis Mitchell isn’t as bullish as some of his peers about the short-term direction of the markets, citing a mix of high valuations and signs of slowing economic growth.
“It’s a bit of a strange brew. Investors have done well, but they’re uneasy about it, and they’re not comfortable taking on additional risk beyond the winners that have gotten them where they are now,” says Mr. Mitchell, chief executive officer and chief investment officer of Starlight Capital in Toronto, which oversees about $1-billion in assets.
“So, for me to be more bullish, I’d need to see a broadening in the rally. I’d need to see investors buying things trading at 10 to 12 times earnings rather than packing more money into [securities] trading at 25 to 30 times earnings,” he adds. “The global economy isn’t really in a place where you would say we should be super bullish about the long-term growth outlook that would result in elevated multiples.”
His concern is that high-flying stocks that have led the market, driven by themes such as artificial intelligence, could correct sharply on any perceived slowdown and drag other sectors down with them.
Mr. Mitchell’s focus is on real estate, a sector that has been under pressure in recent years. However, he notes that real estate, like industrials, is not a monolithic industry, and some pockets have outperformed, such as seniors housing.
“Our approach to real estate hasn’t changed. We’re looking for companies that are going to generate strong returns supported by earnings growth because they own irreplaceable assets,” he says, adding that many of his holdings have seen double-digit returns so far this year.
His $94-million Starlight Global Real Estate Fund has returned 10 per cent year to date, and has seen annualized returns of 6.2 per cent and 4.7 per cent over three and five years, respectively. It also has a 6.8-per-cent annual yield paid to investors monthly. The performance is based on total returns, net of fees, for the firm’s Series F funds as of Oct. 31.
The Globe spoke with Mr. Mitchell about three real estate securities he likes and one he recently sold:
Name three securities you like and have been buying.
Welltower Inc. WELL-N, a seniors housing operator in the U.S., Canada and the U.K., is a stock we bought in February, 2024. It benefits from drivers such as post-pandemic occupancy recovery, an aging demographic and a shortfall in new developments to meet growing demand. We’ve seen a 50-per-cent-plus gain in this stock since we bought it.
It’s a name that we can look confidently forward and say, ‘It doesn’t matter if Trump puts a crimp in global trade. It doesn’t matter if GDP growth is plus five or minus three; people are going to continue to age, and the wealthiest of those people who continue to age are going to continue to opt for seniors housing.’
We can’t make the argument that the stock is cheap, but it is a name with strong earnings growth and a structural demographic driver that should allow it to continue to generate strong earnings growth.
Helios Towers PLC HTWSF, a U.K.-based telecommunications tower company listed on the London Stock Exchange (where we purchased it), is a stock we started buying in March.
This company operates in a sector we call ‘infratech,’ combining infrastructure and technology, including cell towers and data centres. Some people may be familiar with stocks in this industry, such as American Tower Corp., Crown Castle Inc. and SBA Communications Corp.
Helios is cut from the same cloth, but it’s invested in less mature markets in sub-Saharan Africa. We like that exposure because many of the wireless networks in these countries are at 3G – compared to 5G, moving to 6G, in North America.
The regions Helios has exposure to are readying for an upgrade cycle. Cell towers make money through contractual rent increases, telecom upgrade cycles and adding additional tenants to the towers. We’ve seen a return of more than 50 per cent since we started buying it, and we believe there will be further growth ahead.
Brookfield Office Properties Preferred Shares Series P BPO-PR-P-T is a security we first bought in April, 2023, at $10.19 a unit when it was yielding about 11 per cent. It’s now trading at more than $16.
There’s almost a zero chance we won’t get our dividends here, as REITs must distribute dividends to their common shares, accounting for 90 per cent of their taxable income, and preferred dividends take precedent over common dividends. REIT preferred dividends are also cumulative, meaning that if the dividend is suspended and then resumed, the REIT must make up for any missed dividends.
Concerns about office debt defaults and remote work created a buying opportunity in these preferred shares, which usually trade closer to their $25 par.
Name one security that you recently sold.
Kimco Realty Inc. KIM-N, which specializes in grocery-anchored shopping centres in U.S. suburbs, is a REIT we started buying in January, 2024, and sold this past March. A lot of investors like the company because of its strong balance sheet and management team, and most of its tenants cater to consumer necessities. Many investors see it as a safe trade.
We made a decent return of just less than 10 per cent and felt it was fairly valued, but we didn’t see retail as a haven if Trump announced a ton of tariffs ahead of so-called ‘Liberation Day’ [on April 2]. We still like the REIT, but felt there might be better opportunities elsewhere to compound capital at a higher rate of return.
This interview has been edited and condensed.