The Cheapest REIT in Canada

At the moment, Morguard REIT (MRT.UN.TO) is the cheapest REIT in Canada. The stock is currently trading at 52% discount to its book value. The current stock price sits at $12.45, but according to their book value calculation, the company is worth $26 per share. Now, it doesn’t mean that you should buy the stock at 12.45 and expect the stock to jump to 26. There must be a reason why this REIT is discounted so much and today I decided to dig in and see what’s going on.


About Morguard
Morguard Real Estate Investment Trust is a closed-end trust listed on the Toronto Stock Exchange (TSX) under the symbol MRT.UN. The Trust had total real estate assets of $3.0 billion as at December 31, 2018.

The mandate of the Trust is to accumulate a Canadian portfolio of high-quality real estate assets – then actively manage the portfolio to generate steady, dependable returns for Unitholders, through a stable and increasing cash flow. This offers the potential for long-term capital appreciation.




As you can see on the graph above, the company is invested in three asset types: Retail, Office, and Industrial. Their properties are spread out across six Canadian provinces. It’s a good strategy to be diversified across the coasts, unfortunately the Alberta exposure did not play in their favor.


Alberta Exposure
We all remember what happened to Alberta economy when oil prices collapsed in 2014/2015. Companies went bankrupt, people lost jobs, home prices collapsed. Morguard REIT was affected as well by losing tenants in office and retail sectors.

But we’re now in 2019, the Alberta economy is slowly stabilizing, oil prices are slowly recovering, and unemployment rate is starting to decline again. Going forward, Morguard should not be affected from economic slowdown.

Retail Exposure
Alberta is not the only reason why the stock is traded at such a huge discount. The other major concern is their exposure to Retail sector. I believe they should evenly diversify their asset class. They should get rid half of their retail portfolio and invest more in Industrial sector. Industrial sector is a lot safer than Retail, in my opinion.

Discount to Book Value
I’m speculating that the market discounts 20% of share price due to their Alberta exposure and 20% due to their Retail exposure. Once Alberta is fully recovered, Morguard should be trading back at 20% discount to book value, meaning that the stock price could be above $20 within the next three to five years. Keep in mind that prior to oil price collapse, the shares of Morguard REIT were trading at par with book value.


Having said all that, should you invest in Morguard REIT today?

Yes IF:

You like to buy stocks at huge discounts, aka “Value Investor”

You like to get paid while you wait

You believe Alberta economy will recover

You like Morguard’s assets

No IF:

You focus on growth stocks

You don’t believe in Alberta economy

You don’t like Morguard’s assets

If you don’t have three to five years of patience



Am I invested in Morguard?
Yes. I bought my first tranche of 70 shares in 2017 for $14.80 per share. I bought my second tranche of 70 shares in 2018 for $13.33 per share. I hold a total of 140 shares or MRT at an average cost of $14.06 per share. 

Am I losing money on this investment?
Yes and No. My position is underwater, but since I didn’t sell my shares, I did not lose money. My current unrealized capital loss on this investment is $225.40. However, the company paid me $190 in dividends in two years for owing the stock. So basically I break even.


Will I buy more shares of Morguard?
Yes, especially if the share price dips below $12. I will take advantage of a huge discount and it will be a great opportunity for me to lower my average cost.



Thank you for reading and if you have any questions, please comment below. Also, let me know if you follow this company and if you are invested in it? What do you think of Alberta economy and the huge discount this stock has?