Real Estate Investment Trusts have become pillars of the Canadian investment landscape.

Yet, REITs, as they’re known, remain the black sheep of the investing family. They get no respect from the Toronto Stock Exchange – and that’s preposterous.

Although REITs are booming, you probably don’t even know that there are now 21 of the income- generating real estate investments trading on the TSX with a total market cap of more than $10 billion.

Two REITs, the RioCan Real Estate Investment Trust (REI.UN) and H&R Real Estate Investment Trust (HR.UN), boast market caps in excess of $1 billion (RioCan’s market cap is at $2.3 billion).

Calgary alone is the home of five REITs – Legacy Hotels, TGS North American, Royal Host, Northern Property and Calloway.

Ten real estate firms have converted into REITs in the past three years with the recent conversion of Dundee Realty Corp. (D.UN).

With interest rates at 50-year lows and market players gun shy from a prolonged bear stock market, investors have an insatiable appetite for the alluring yields of REITs that generally range from 8-12 per cent.

REITs get respect from virtually everyone. Everyone, that is, except the exchange on which they trade.

It is truly mind boggling that Canada’s senior stock exchange doesn’t allow REITs into its benchmark index, the S&P/TSX composite index. Another hot sector, income trusts, is also barred from entry into the index.

Stocks in a major index have an edge over non-index stocks because they can be bought by index funds and also get the added exposure of having their ticker symbol and quotes streamed on ROB-TV.

No wonder most of this country’s investment gurus seldom even mention the TSX composite index when discussing the market environment. Instead, they generally focus on the U.S.-based indices – the Dow Jones, the Nasdaq and the S&P 500, which includes American REITs.

The TSX composite index, minus any proper representation from the real estate sector, is a miserable failure as a barometer of the Canadian economy and gauge of stock market performance.

It’s a black mark on the Canadian stock market and a slap in the face to some of the country’s best-managed companies and investors.

The rush by real estate firms to convert into REITs has rendered the TSX real estate sub-index an even bigger joke than the TSX composite index. The real estate sub-index comprises two companies – Brookfield Properties (BPO) and Calgary-based Boardwalk Equities (BEI).

Last fall, the TSX rejected a bid by REITs and income trust companies to be included in the composite index.

The TSX also did a lousy job of explaining its stance, only citing concerns over the potential liability of unitholders.

The Ontario government recently dealt with that issue by introducing legislation that makes it clear that investors in publicly traded trusts can’t be held liable for the activities of the trust or its trustees.

With trust unitholders in Quebec already protected from liability, the Alberta and B.C. governments are now being lobbied by the industry to follow Ontario’s lead.

Yet, the TSX hasn’t even given any assurance that it would change its policy once the liability issue is dealt with.

No doubt, the tall foreheads at the Toronto Stock Exchange will come to their senses one day and include REITS and income trusts which would give the index some badly needed credibility.

Until that happens, don’t take the publicly listed Toronto Stock Exchange and its Mickey Mouse benchmark index too seriously.

If you’re looking for a true gauge of stock market sentiment, the U.S. indices may be your best bet.

Until a REIT or income trust breaks the barrier into the TSX composite, the Financial Edge will no longer acknowledge Canada’s silly old index.

* WAKEUP CALL: Although most REITs have performed admirably in recent years, providing unitholders with cushy capital gains and cosy monthly distributions, it isn’t all roses and champagne, particularly with those REITS with exposure to the floundering hotel industry.

The Legacy Hotels Real Estate Investment Trust recently left unitholders without the room service they may have thought was guaranteed, namely the delivery of monthly distribution payments.

Calgary-based Legacy, which owns luxury hotels under the Fairmont banner such as the Palliser in Calgary and the Hotel Macdonald in Edmonton, suspended its distributions for the second quarter, citing SARS as the main culprit. The company had been paying a distribution of 18.5 cents per share.

Legacy stock took a 10-per-cent tumble on the news and is down 33 per cent since last September, leaving investors feeling like they’d fallen out of bed.

* SAGE WORDS: “If you’re working solely for a paycheque, no matter how many zeroes it has on it, you’re still at a subsistence level.” – Jack Nicholson



HOT ALBERTA STOCK: CDK SERVICES
CDK-TSXV 18 cents
Up 7 cents (+63.6%) on 71,000 shares (for week ending July 3).
If you’ve already figured out the wacky trading patterns of the Venture Exchange’s obscure penny plays, you’re probably quaffing umbrella cocktails on some tropical paradise island. If you can’t figure out why CDK, a Calgary oil and gas service company, spiked 63.6%, well, at least you can dream about those exotic umbrella cocktails.



COLD ALBERTA STOCK: SHEAR MINERALS
SRM-TSXV $1.18
Down 22 cents (-15.7%) on 609,500 shares (for week ending July 3).
They say nothing goes up in a straight line and that’s even true for this Edmonton-based diamond exploration play that has given shareholders a wild ride up the mountain. If you speculated on Shear at the 52-week low of 16 cents, you’re still ridin’ some serious paper money.