Scotiabank Scotiabank’s 2nd annual industrial REIT conference just concluded, and analyst Himanshu Gupta, summarized the findings,
“The Panel had good representation from public markets (CEO’s of DIR [Dream Industrial REIT], GRT [Granite REIT], SMU[Summit Industrial Income REIT]) and private markets (Blackstone and Oxford Properties). Overall, tone of the panel was bullish. Common theme that we heard: industrial supply-demand imbalance + secular tailwinds should lead to market rent growth well-above inflation levels in core industrial markets … we highlight that there is meaningful mark-to-market rent opportunity which is now completely overlooked by the market – we think NAVs could grow 15%-25% from here i.e. DIR NAVPU [net asset value per unit] could increase to $19.50, GRT to $120.00 and SMU to $25.00. Bigger picture, we think, despite two back-to-back years of outperformance, the set-up for Industrial REITs has not changed i.e. still superior AFFO [adjusted funds from operations]growth, AFFO multiple is still reasonable and secular trends are intact… Themes which could work in current environment: Lower Leverage and Lower PEG [PE to growth] Ratios i.e. names which can grow AFFO with lower leverage and where AFFO multiples are reasonable: We note that Industrial REITs screen well on both leverage and PEG metrics. Exhibit 1: Top 5 names with lowest leverage across universe (GRT, SMU, AP, DIR and TCN). Exhibit 3 showing Top names with one of the lowest PEG Ratios (SVI, TCN, ERE, SMU, GRT and DIR). With rising bond yields and uncertain macro environment, we think investors should look for lower-multiple growth names with low leverage.”
The analyst has “sector outperform” ratings on Dream Industrial Income, Granite and Summit.