BNS Scotiabank real estate analyst Mario Saric is recommending a shift to value in the REIT sector.
“Sector recovery to NAV implies unit price growth needs NAVPU/AFFOPU [net asset value per unit/adjusted funds form operations per unit] growth… CAD REITs have recovered to an ~2% NAV premium, which historically has led to an avg. 6-month total return [TR] of ~5% (vs. an avg. 15%+ TR when trading at a 10%+ discount to NAV). That said, our ~7% NTM [next 12 months] AVPU growth forecast + 4%-5% distribution yield still supports a 10%-12% NTM total return, which we think is achievable under positive economic momentum. We continue to recommend a slight short-term tactical shift into Value at current relative valuations to Growth.
Top Value Picks = Allied properties REIT, Chartwell Retirement Residences, Dream industrial REIT, European Residential REIT, Northwest Healthcare Properties REIT, Riocan REIT ;Top Growth Picks = Brookfield Asset Management, Crombie REIT, Granite REIT, BSR REIT, InterRent REIT, Summit Industrial income REIT, StorageVault Canada Inc., Tricon Residential REIT; Top Income = Automotive Properties REIT, CT REIT; all rated Sector Outperform”