Post by
undervalue on Oct 06, 2022 11:07am
General comment on Industrial Reits
MPC is not a Reit, but operates in the same markets. My guess we are trading below reported NAV by 15% at the last trade of $6. We believe the MPC marks are very conservative.
From Scotia.
Positive. In our note last month, we mentioned “Don’t Start Bottom Fishing” ( link). Since then, Industrial REITs are down another ~10%. Now, looking at the strength of Q3 Canadian Industrial market stats, and realizing that Industrial REITs are down 31% YTD, we think it is time to be more opportunistic. (1) Update on Fundamentals: trends continue to strengthen in Q3 – more details in Exhibits 1 to 23. CDN national availability rate decreased further to 1.5% (-10bp q/q) and it is very tight across all markets. CDN market rent growth nationally accelerated to 29% y/y (from 25% in Q2) and is still up 5% on q/q basis. National leasing volumes are still holding well. Average sale price (per sf basis) increased (not decreased) 3% q/q. (2) Update on Valuation: Industrial REITs trading at 21% discount to NAV vs REIT sector at 23% – no premium valuation since July’22. AFFO multiples back to pre-pandemic levels (Exhibit 25) for Industrial REITs. Overall, sector AFFO yield spread to 10-yr bond yields look much more reasonable now (current spread of 355 bp, up from ~260bp during recent peak, and now much more reasonable compared to historical average of ~400 bp). See Exhibits 24 to 37 for valuation charts.