BNS Scotiabank analyst Mario Saric measures the results of a new report on corporate lending and their implications for Canadian REITs,
“We summarize CBRE’s published 2020 CAD Lenders’ Report. Analyzing lender intentions is important: lending appetite drives mortgage spreads, which drive cap rates, which drive NAVPU, which is the most relevant driver of CAD REIT unit prices over time.
“Our key observations in this report include: 1) We view lenders as cautiously optimistic post a tough 2020, with mid-teen target y/y net loan book growth; we reiterate a strong economy is positive for REIT returns 2) The gap between the “haves” and “have nots” may be widening (rising lender interest in Apartments and Industrial; less in Office and Retail; Exhibit 19), which may have NAVPU growth implications; report looks particularly good for Apartments … 4) A return to pre-COVID activity is not expected overnight … Value still has some legs, but be ready to shift back to growth in 2021 on narrowing valuation. We believe CAD REITs remain in ‘buy territory’, trading at an avg. 10% discount to NAV despite an avg. 9% return (vs. 6% for TSX) post Pfizer’s vaccine update on Nov. 9 … Several of our top picks offer both value and growth. Top Growth Picks = APR, BAM, GRT, IIP, NWH, SMU, SVI and TCN. Top Value Picks = AP, APR, BAM, BPY, CRT, CSH, DIR, ERE, FCR, SRU, and TCN”