TD Elsewhere, TD Securities’ Sam Damiani and Jonathan Kelcher lowered their targets for Canadian real estate equities by an average of 9 per cent to “reflect recent increases in prevailing and forecast long-term government bond yields, a more challenging capital-raising environment, and heightened geopolitical risks.”
“With more widespread expectations of a ‘higher-for-longer’ interest rate environment, we foresee management commentary leaning more to the defensive this quarter,” they said. “This could encompass a heightened focus on liquidity generation and/or a possible tempering of growth capex/objectives (though the GST/PST rebates for rental residential construction are an offset). We will watch for any changes in leasing momentum, along with the transaction market and capital recycling/disposition programs.
“Since we published our 2025 estimates and forecast balance-sheet debt metrics, the outlook for interest rates has once again risen, which will likely affect our interest cost assumptions and some SPNOI forecasts, with business/consumer spending power being more impacted. Over Q3/23 earnings season, we believe both consensus NAVs and earnings forecasts have some downside potential.”
The analysts added: “We continue to prefer the Industrial, Residential, and Retail property sectors. Our ACTION LIST BUY-rated names are CAPREIT [$59 target, down from $62], First Capital REIT [$16 target, down from $18) and Granite REIT [$86 target, down from $95].”