True North Commercial REIT: A Contrarian Play in Stabilizing Commercial Real Estate

The commercial real estate (CRE) sector has emerged from pandemic volatility, with occupancy rates rebounding and demand for office, retail, and industrial spaces stabilizing. Amid this backdrop, True North Commercial REIT (TNT-UN.TO) stands out as a contrarian opportunity. Despite lingering macroeconomic risks, its attractive price-to-book (P/B) ratio, aggressive buybacks, and insider confidence suggest a compelling risk-reward profile for investors willing to look past near-term uncertainty.

Undervaluation: A Price-to-Book Ratio at Historical Lows

The REIT's P/B ratio of 0.31 (as of Q3 2024) is near its 1-year low of 0.28 and far below its 10-year median of 1.02. This metric implies the market is pricing TNT-UN.TO at 31 cents for every dollar of book value, a stark discount to its historical norms.

A P/B ratio below 1 often signals undervaluation, especially for REITs with tangible assets. True North's book value per share of C$30.34 (as of September 2024) is supported by a diversified portfolio of commercial properties, including office and industrial assets. While the REIT's recent high dividend yield of 13.69% adds allure, its undervaluation remains the core driver for contrarian investors.

Strategic Buybacks: Management's Confidence in the Stock

True North has leaned into its Normal Course Issuer Bid (NCIB) to capitalize on its undervaluation. In April 2025, it renewed its NCIB, authorizing the repurchase of up to 10% of its public float (1.22 million units). This follows a prior NCIB cycle where it repurchased 925,826 units at an average price of C$10.06, signaling a long-term commitment to returning value to shareholders.

The renewed NCIB underscores management's belief that the stock is undervalued. Buybacks reduce shares outstanding, boosting per-unit metrics like FFO (funds from operations) and AFFO (adjusted funds from operations). With occupancy rates stabilizing and interest in CRE rebounding post-pandemic, this strategic use of capital could amplify returns for long-term holders.

Insider Buying: A Vote of Confidence

Insider activity has been a consistent signal of confidence. Notably, Daniel Drimmer, a 10% security holder and director, executed multiple purchases in early 2025, including:
- March 25, 2025: 2,000 units at C$10.30.
- March 21, 2025: 1,000 units at C$10.63 and 700 units at C$10.50.

While no April-June 2025 transactions are reported, these March purchases occurred at prices significantly above the stock's current trading level (C$9.28 as of September 2024 data), reinforcing insider conviction in the REIT's long-term prospects.

Sector Dynamics: Post-Pandemic Stabilization

The commercial real estate sector is showing signs of recovery:
1. Office Space: While remote work persists, demand for flexible, hybrid office spaces is growing.
2. Industrial/Logistics: E-commerce and supply chain resilience continue to drive demand for warehousing and distribution centers.
3. Retail: Outperforming sectors include experiential retail and grocery-anchored malls.

True North's portfolio alignment with these trends—particularly its focus on industrial and strategic urban office locations—positions it to benefit from sector stabilization.

Risks to Consider

• Interest Rate Sensitivity: Rising rates could pressure REIT valuations, though the REIT's low leverage ratio (32% debt-to-assets as of Q3 2024) mitigates this risk.
• Economic Downturn: A recession could weaken occupancy and rental growth.
• Delayed Q1 2025 Results: The twice-postponed earnings report (as of April 2025) has raised investor concerns, though delayed reporting is not uncommon in the sector.

Investment Thesis: A Contrarian's Play

The combination of historically low valuation, active buybacks, and insider support suggests TNT-UN.TO offers a favorable risk-reward profile. Key catalysts include:
1. Q1 2025 Results: A strong occupancy report or debt refinancing could alleviate concerns.
2. Sector Recovery: Continued stabilization in CRE fundamentals could lift valuations.
3. Buyback Execution: The renewed NCIB's progress in 2025-2026 will be critical.

Recommendation:
- Buy: For investors with a 12- to 24-month horizon, the 13.69% dividend yield and potential re-rating provide asymmetric upside.
- Hold: For those averse to near-term volatility, wait for Q1 results and clearer sector trends.
- Avoid: If macroeconomic risks escalate, leading to prolonged CRE weakness.

Final Thoughts

True North Commercial REIT is a classic contrarian play: undervalued by historical metrics, supported by insider buying, and positioned to benefit from sector recovery. While risks like interest rates and economic slowdowns loom, the stock's current discount to book value and management's proactive capital strategy suggest the upside potential outweighs the risks for patient investors.