Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets head of global real estate research Pammi Bir surveyed the domestic real estate sector and reiterated his top picks,
“Since the BoC set course on its aggressive rate tightening campaign in 2022, our universe has traded at an average 20% NAV discount. Even after taking our NAVs down 14%, the outsized discount persists as investors have clearly taken a more cautious stance. Have NAVs lost some of their relevance in influencing REIT returns? Has cash flow growth moved to the forefront? As discussed in our feature section, NAV growth still demonstrates the strongest relationship with unitholder returns over multiple time periods, though AFFOPU and DPU are also relevant. Taking a closer look at total returns on a 10 and 15-year basis, top quartile performers were also typically leaders in NAV growth, while multi-family and industrial dominated the top quartile for returns on a 10YR basis … While macro aid is a likely prerequisite, we believe the key pieces for stronger sector returns remain in place. Yet, in the absence of lower rates, we believe our top picks (AP [Allied Properties REIT], BEI [Boardwalk REIT], CAR [Canadian Apartment REITs], CIGI [Colliers International Group], CSH [Chartwell Retirement Residence], DIR [Dream Industrial REIT], FCR [First Capital REIT], FSV [Firstservice REIT], GRT [Granite REIT], HOM [BSR REIT], IIP [Interrent REIT], KMP [Killam Apartment REIT], MHC [Flagship Communities REIT], MI [Minto Apartment REIT], MRG-U [Morguard North American Residential REIT], REI [Riocan REIT], SRU [Smartcentres REIT], SVI [Storagevault Canada Inc.]) are positioned for superior growth, particularly given the weighting in multi-family, industrial, storage, defensive retail, & seniors housing”
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Citi strategist Beata Manthey outlined the firm’s global sector outlook,
“Following healthy gains YTD [year-to-date], we target a modest +2% upside for the MSCI AC World to end-24. Top-down, we forecast +10% EPS growth in 24E, slightly below bottom-up consensus (+11%). Our targets imply little change to valuation multiples, which may prove conservative in a central bank cutting cycle. While equities have narrowed YTD, we still see broadening leadership over the medium-term. Our thesis is based on broadening earnings growth in 24E. Macro risks are more balanced, but tilt to the upside. Cyclical markets/sectors should have greater leverage to the broadening theme. We maintain our preference for European equities in a global context and upgrade Japan to Overweight. We downgrade EM to Neutral. We continue to tilt our global sector strategy towards Cyclicality, with Overweights in Consumer Discretionary, Financials, and Industrials. We take profits on our IT Overweight and downgrade to Neutral. Key risks include rates volatility, stretched positioning, and geopolitics”
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Goldman Sachs chief U.S. equity strategist David Kostin previewed U.S. earnings season with the implication that megacap market leadership will continue,
“Neither [Friday’s] today’s 4.8 magnitude earthquake in the New York metro region nor Monday’s solar eclipse will disrupt the start of 1Q earnings season that begins next week. Labor market data continues to exceed expectations. However, micro data is more concerning with S&P 500 companies forecast to report year/year growth in both sales and EPS of only +3% given a flat margin outlook. The 10 largest stocks will post sales and EPS growth of +15% and +32%, respectively, vs. +2% and -4% for the remaining 490 index constituents. Weak reports from several retail stocks have raised questions about the state of the US consumer. Investors will scrutinize management comments on the potential benefits of AI capital spending plans”
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Diversion: “The 4 factors that have led to a ‘golden age’ of discovery for Great Lakes shipwrecks” – CBC
Editor’s note: This article has been updated to clarify that the RBC Capital Markets report pointed out Morguard North American Residential REIT (MRG-U), not MRG.
Scott Barlow