Jeff Olin of Vision Capital Corp.The Globe and Mail
While most investors buy real estate assets hoping their prices will increase, Toronto-based Vision Capital Corp. takes a different approach. The company has a long-short strategy, which means it invests in companies it believes will rise in value and also aims to profit from declining stocks.
“Our strategy is not reliant on being bulls for real estate. We seek to outperform, irrespective of real estate supply-and-demand fundamentals or valuations,” says Jeff Olin, co-founder, chief executive officer and portfolio manager at Vision Capital, which oversees about $1-billion in publicly traded real estate assets, including equity and debt.
“We seek to buy real estate cheaper in the stock market than one can in the property market,” Mr. Olin adds citing “inefficiencies” in the sector that he says provide investment opportunities.
“The private market dwarfs the public market, and there’s an arbitrage between the two. We’d rather not compete with Blackstone [Inc., one of the world’s largest real estate investors]. We’d rather sell to Blackstone, which we’ve done on four occasions during the past few years.”
Most of the firm’s long-only real estate investments include grocery store-anchored retail, data centres (think artificial intelligence), industrial space and manufactured housing communities.
Vision is short securities in sectors such as office (with some exceptions) and self-storage, citing a hike in supply and rents during the pandemic, hotels due to “economic softness,” and health care, specifically nursing homes in the U.S. due to tougher regulations the Biden administration brought in.
Vision Opportunity Fund LP Class BF, the firm’s mainstream and most liquid fund, has returned 4.2 per cent year to date and 10.2 per cent over the past 12 months. Its five-year annualized return is 5.3 per cent. The fund has returned 10.9 per cent annually since inception in July, 2008. The fund’s performance is based on total returns, net of fees, as of July 31.
The fund’s performance compares to a return of 1.3 per cent year-to-date for the S&P/TSX Capped REIT Index. The index returned 1 per cent during the past 12 months and has seen an annualized return of 1.4 per cent over the past five years. Its annualized return since July, 2008 is 7.1 per cent. All index performance data is as of July 31.
The Globe spoke with Mr. Olin recently about what he’s been buying and selling:
Name three stocks you’ve been buying and continue to own.
Digital Realty Trust Inc. DLR-N, which owns and manages data centres throughout North America, Europe, Asia and Australia, is a stock we bought in November, 2022, at an average price of US$95.33.
The data centre sector is a relatively new real estate asset class, emerging during the past decade from the migration from physical to digital across various sectors and the emergence of artificial intelligence. This company is differentiated from its major competitor, Equinix Inc., which leases many of its data centres, whereas Digital Realty owns the real estate. It also develops this type of real estate, which is badly needed, so that’s a real value-added piece.
The company is well-positioned for growth. It also pays a 3.3-per-cent dividend. The biggest risk for this stock is a rollover in sentiment for AI in the short term. However, I don’t think it’s a huge risk in the long term.
Empire State Realty Trust Inc. ESRT-N, the company that owns the Empire State Building and the observatory as well as mid-market office space, is a stock we bought in January this year for an average of US$9.87.
Tourism has returned to New York in a big way. The company is also benefiting from the return-to-office trend, which is significant in New York. It also has good management, and the stock is cheap, trading at a 25-per-cent discount to its net asset value [which is the value of assets minus liabilities]. A risk for the stock is a potential U.S. recession, but we think it’s less of a risk in New York.
First Capital REIT FCR-UN-T has a high-quality grocery-anchored shopping centre portfolio. It owns properties in six major growing Canadian cities: Toronto (which accounts for 50 per cent of the portfolio), Ottawa, Montreal, Calgary, Edmonton and Vancouver. We bought this real estate investment trust in March 2021 at an average of $15.74.
It has more than 23 million square feet of potential future incremental density to build apartments on its grocery-anchored shopping centres. The company also pays investors an attractive 5-per-cent dividend yield. Risks include management’s capital allocation decisions, which historically have been a concern with current management, notwithstanding the outstanding quality and location of its properties.
Name a stock you recently sold.
Tricon Residential Inc. TCN-T was a core holding for us for years. It was taken over by Blackstone Inc. earlier this year. We were forced to sell at a 30-per-cent premium to the stock price at the time in January.
The company was primarily in the U.S. single-family home business and had a compelling apartment development platform in Canada. We had the privilege of participating with Blackstone in 2020 in an exchangeable preferred share investment at a pretty attractive valuation. It’s the 21st takeover we’ve had in 16 years in our portfolio. In this case, we bought more stock after the announcement when it briefly traded below the takeover price. Ultimately, our cost base was $8.20 and we exited at $11.25.
This interview has been edited and condensed.
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