National Bank Heading into first-quarter earnings season in the Canadian real estate sector, National Bank Financial analysts Matt Kornack and Tal Woolley continue to see the highest average total returns in their industrial, seniors/healthcare and multifamily coverage universes, pointing to total returns of 24 per cent, 22 per cent and 21 per cent, respectively.
“Our expectations are stronger for the names that are better positioned to capture inflation through rental uplifts,” they said. “We see average total returns of 14 per cent for Retail coverage and 10 per cent for Office, which still have to resolve questions around growth/occupancy as COVID wears on. Our Special Situations coverage also offers some interesting opportunities in selfstorage, single-family housing and manufactured housing (again, all quasi-residential and quasi-industrial asset classes).”
The analyst see Industrial sector, bringing the highest average total return, as “one of the best inflation hedges across the real estate landscape as rental rates continue to rise with essentially no market vacancy” and see it “particularly pronounced” in the largest urban areas.
“Lease term remains an impediment to a full pass-through of MTM [mark-to-market] opportunities but needless to say, the widening spreads provide years of outsized growth prospects as increasingly annual rent escalators are moving higher,” they said. “Landlords are also capable of pushing down costs and capex items that in less frothy markets the tenant would likely try to skirt. In this context, we held target prices flat despite rising bond yields but acknowledge that multiple expansion from here is going to be challenging (absent a pullback in bond yields, which is entirely possible as the threat of a 2023 recession looms).”
They made these changes:
- Canadian Apartment Properties REIT (,“outperform”) to $62.25 from $70.50. Average: $67.
- European Residential REIT ( “outperform”) to $5.50 from $5.60. Average: $5.73.
- InterRent REIT ( “outperform”) to $17 from $19. Average: $19.58.
- Nexus Industrial REIT ( “outperform”) to $15 from $14.25. Average: $14.86.