Raymond James Broadly speaking, Raymond James analysts believe the real estate sector is a good buying opportunity for those with long-term horizons.
“We maintain our belief that the dislocation between public unit prices and underlying estimated NAVs may once again prove to be a very attractive buying opportunity. While we are encouraged by the deceleration of North American inflation rates YoY, it may yet take more time for clear evidence that we have reached a peak level for interest rates in this hiking cycle. Key potential near-term positive catalysts to keep in mind for the Canadian REIT sector include: a pause or pivot from a hawkish to more dovish stance by central banks including the Bank of Canada (BoC), supporting a view that we may have finally reached an interest rate peak; increasing transactional activity in the direct property market that validates estimated NAVs; solid SP-NOI reporting metrics, and accelerating AFFO/unit YoY realized by certain Canadian REITs, greater clarity surrounding Federal regulatory risks for the Canadian MFR property sector, and potential Canadian REIT/REOC M&A/privatization transactions.”
Raymond James ranks its preferred way to invest in the sector as follows: 1) Canadian multifamily rental (MFR); 2) industrial; 3) US residential; 4) retail; 5) storage; and 6) office. “Our Strong Buy rated stocks include InterRent, Tricon, Granite and Nexus. We also highlight Outperform rated stocks DIR, Flagship, Killam, Minto, and Primaris to round out our current list of preferred stocks. Our preferred Canadian REITs generally feature strong balance sheets (e.g., low financial leverage, ample balance sheet liquidity, and limited floating rate debt), below-average AFFO/unit payout ratios, portfolios weighted towards ‘high-growth’ markets, above-average organic growth prospects, NAV estimate discount valuations, and may benefit from 1 or more near-term positive catalysts,” Raymond James said in its note.