Jeff Olin, co-founder of Toronto-based Vision Capital Corp. Illustration by Joel Kimmel.The Globe and Mail
Jeff Olin says he’s no real estate bull. But given how inexpensive real estate investment trust (REIT) valuations are these days, the money manager sees opportunities in key segments of the beaten-down sector.
“We’re pretty constructive, notwithstanding some of the sentiment driven by U.S. 10-year Treasury bonds,” says Mr. Olin, co-founder of Toronto-based Vision Capital Corp., a real estate-focused firm that oversees about $700-million in assets.
Rising yields are seen as negative for the real estate sector because they drive up borrowing costs. However, Mr. Olin says the “silver lining” for real estate investors is a slowdown in supply growth driven by higher construction costs.
At the same time, he points to demand growth in specific sectors benefiting from secular economic trends such as an aging demographic, which serves as a tailwind for seniors’ housing. There’s also artificial intelligence adoption underpinning demand for data centres.
Mr. Olin says his firm’s strategy is to buy real estate more cheaply in the stock market than in the property market. Vision Opportunity Fund LP Class AF, the firm’s flagship fund that applies a long-short strategy to publicly traded real estate securities, has returned 6.2 per cent over the past year. Its three- and five-year annualized return is 4.8 per cent and 2 per cent, respectively. The fund has returned 10 per cent annually since inception in July, 2008. Performance is based on total returns, net of fees, as of Aug. 31.
Mr. Olin says performance has benefited from 25 takeovers of its portfolio holdings over 18 years at an average premium of 29 per cent.
The Globe spoke with Mr. Olin recently about what he’s been buying and selling:
Name three securities you’ve been buying or adding.
Chartwell Retirement Residences (CSH-UN-T), the largest owner and operator of seniors’ housing in Canada, based in Mississauga, is a REIT we’ve held since August, 2023. Our original purchase price was $9.93 a unit and we’ve been adding to it since (while also taking some profit at around $23). Our most recent purchase was in August.
We like the seniors’ housing space because of the supply-and-demand fundamentals. Also, Chartwell’s portfolio continues to perform well, with occupancy forecast to hit 95 per cent in December. It has announced about $1.4-billion of accretive acquisitions from 2024 to 2026 in sought-after markets such as Montreal, Quebec, Victoria and southwestern Ontario. We believe these benefits aren’t fully priced into Chartwell’s valuation. It also provides a nice yield of 6 per cent.
Brookdale Senior Living Inc. (BKD-N), the Brentwood, Tenn.-based company that owns and operates retirement homes across the U.S., is a stock we bought in April this year for an initial price of US$13.34, and we’ve added to as recently as early September.
It’s the largest provider of seniors’ housing in the U.S., operating 535 properties across 41 states. It’s a turnaround story. New management has transformed the operating culture. Occupancy across its operations has improved 140 basis points year-over-year to 83.2 per cent and the company is projecting a 30-per-cent reduction in leverage over the past three years by the end of this year.
We’re bullish on the stock because of its growth in occupancy and net operating income. Brookdale trades at a much lower valuation than its U.S. senior living peers.
First Industrial Realty Trust Inc. (FR-N), the Chicago-based REIT focused on logistics and industrial properties in the U.S., is a stock we’ve held for about five years. We added to it in December last year and again most recently in August.
These recent purchases reflect our resurgence of interest in the industrial space, which is seeing a secondary benefit from growth in data centres. Add to that the ongoing growth in e-commerce activity.
We believe long-term secular factors are driving industrial demand and that First Industrial is one of the best names in the space. It has disciplined capital allocation, a strong internal growth profile and an attractive relative valuation to its peer group in a sector that’s quickly reverting to a favourable forward-looking supply-demand backdrop.
Name one stock you sold recently.
Digital Realty Trust Inc. (DLR-N), the largest global data centre owner and operator, based in Austin, Tex., is a stock we first bought in May, 2024, for an average price of US$140 and sold in September this year. It did really well for us.
When we bought the stock a couple of years ago, it was based on the continued rapid growth of data consumption. Although demand growth continues, supply hasn’t caught up. We also anticipate rising regulatory headwinds that may constrain data centre activity, with a disproportionate impact on hyperscalers as AI models raise national security risks and require greater access to power.
We instead favour companies more focused on colocation data centres such as Equinix Inc. (EQIX-Q), Csquare Inc. (CSQR-N) and Singapore-based Digital Core REIT, which are also trading at more attractive relative valuations. We also believe they have more resilient growth profiles if AI adoption slows.
This interview has been edited and condensed.