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A Chartwell Seniors Housing REIT in Toronto. As four REITs prepare to report this week, analysts insist the sector’s streak of outperformance still has room to run.

Fred Lum/The Globe and Mail/Fred Lum/The Globe and Mail

Real estate investment trusts have been red hot for three years. As four REITs prepare to report this week, analysts insist the sector's streak of outperformance still has room to run.

REITs will generate total returns (that is, dividend payouts and capital gains) of between 15 per cent and 25 per cent during this year and the first half of next, estimates Alex Avery, an analyst with CIBC World Markets Inc. His forecast follows a total return of 22 per cent for the S&P/TSX REIT index last year, 23 per cent in 2010 and 55 per cent in 2009.

While REIT valuations today are high, many analysts believe that the prices are justified given low borrowing costs, high demand for income among investors, rising distributions and the prospect of further consolidation.

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Canadian Apartment Properties REIT posts results on Tuesday. CAP is hoping to raise rents at most of the almost 31,000 multi-residential rental units it owns across the country. The majority of its units are in Ontario, where provincial regulations have set a guideline rent increase of 3.1 per cent this year, the largest since 2001. Toronto-based CAP is aggressively pursuing approvals for hikes above this level, Mr. Avery notes. And at the same time, the REIT is benefiting from lower borrowing costs as it refinances mortgages.

Things are more difficult for Extendicare Real Estate Investment Trust , which reports on Wednesday. The results will represent the first quarter affected by an 11 per cent reduction in U.S. medicare funding for nursing homes that went into effect in October. The cut is likely to trim annual revenue by between $70-million and $80-million.

Extendicare has already announced a plan to convert from an income trust to a corporate structure. The plan still requires a two-thirds approval of unitholders and a vote will be held in conjunction with the REIT's annual meeting May 8.

"Recent market price volatility in Extendicare units has been significant, and we expect continued volatility is quite possible," Mr. Avery wrote in a report.

Despite its U.S. challenges, Extendicare draws praise for its financial strength, ending the third-quarter with $266-million in cash and equivalents. It, too, is in the final phases of a large debt-refinancing program that will result in significantly lower borrowing costs.

Mall operator Primaris Retail Real Estate Investment Trust , reporting on Thursday, found itself scrambling last year to fill the vacant spaces left by the bankruptcies of numerous mid-sized retailers. Tabi, Jacob, Please Mum and Sterling Shoes were among those closing their doors. The REIT has vowed to have its operations back on track this year or next and is counting on the addition of eight new Target Corp. locations to bolster its portfolio.

"The recent smaller tenant insolvencies appear to have occurred at an opportune time, with re-leasing efforts under way in an environment of strong demand from retailers for good space, and specific demand for locations near new Target locations," Mr. Avery noted.

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When Chartwell Seniors Housing REIT posts numbers on Thursday, investors will be keen to hear more details on its deal this month with U.S.-based Health Care REIT Inc. The two REITs will jointly buy 39 properties for $850-million, which will make Chartwell the largest owner-operator of retirement residences in Canada.

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