‘Back to the office – whether you want to or not’: REIT executives

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

CIBC held their annual real estate conference virtually after a one-year hiatus.

Management at major office REITs remain adamant that work-from-home will largely end with vaccinations,

“Back To The Office – Whether You Want To Or Not: There has been a widely circulated narrative over the past year suggesting that many employees that are currently working from home will continue to do so, even in a post-pandemic world. Panelists seemed to widely disagree with this notion (it seemed to come up in every panel, not just our office-specific discussion). The consensus view seems to be that many companies will provide their employees with increased flexibility (some days working from home), but a full remote schedule will likely represent the exception, as opposed to the rule”

My own experience is just an anecdote, but the inertia behind continuing to work from home has been much more powerful than I thought.

“@SBarlow_ROB from CIBC summary of recent real estate conference: “Back To The Office – Whether You Want To Or Not:”” – (research excerpt) Twitter

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Wall Street strategists, like BofA Securities quantitative strategist Savita Subramanian, have been advising clients to move away from the lower balance quality companies that led markets earlier in the year towards higher quality companies.

Ms. Subramanian’s competitor at Morgan Stanley, quant strategist Boris Lerner, highlighted that the higher quality strategy is already starting to work,

“Cyclicals have been outperforming Defensive stocks, and Junk/Low Quality stocks have been leading High Quality stocks since the market started to recover off the March 2020 lows. That outperformance has reversed last month, however, as investors have started to ponder the next stage of the reopening and potential transition from early cycle to mid-cycle economy … Cyclicals … are currently trading at 22.6x times NTM [next 12 months] earnings (98th percentile relative to the last 10 years), while Defensives are trading at 18.2x (86th percentile)Our US Equity Strategy team recommends a shift towards higher quality names in their recent Weekly Warm-up: More on The Mid Cycle Transition to Quality; Staples over Discretionary”

When most investors think of the reflation trade, they are unlikely to consider consumer staples which makes this recommendation interesting to me.

“@SBarlow_ROB MS: Cyclicals already too expensive, staples look better” – (research excerpt) Twitter

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Citi analyst Robert Morse is optimistic about the prospects for resource stocks but does not see a new commodity supercycle,

“While we do not believe that every commodity will end the year higher priced than it was on average last year, we don’t forecast many commodities that will be priced lower. Of the 21 commodities we price regularly, we see lower prices in 2021 than 2020 for only two – yes, you guessed it, one is gold; the other is cocoa. Of the two dozen commodities for which we have a forward outlook for the next quarter, we are bullish more than two-thirds of them and have a bearish outlook on none (although we are neutral to bearish gold and thermal coal) … We are skeptical that the essential ingredients are at hand for a supercycle, starting with US dollar weakness … It’s virtually critical for a supercycle to emerge and retain resilience to be backed by strong and persistent upward price pressure in oil, gas, and other energy sources. Here Citi remains bearish oil and gas balances in the medium term, starting with 2022”

“@SBarlow_ROB Citi: No commodity supercyce ahead (except for copper)” – (research excerpt) Twitter

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Newsletter: “Citi doesn’t like this market at all” – Globe Investor

Diversion: “You Probably Have an Asymptomatic Infection Right Now” – The Atlantic

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