Scotiabank Scotiabank REIT analyst Mario Saric recaps top picks, details his belief that private deals will signal a soft landing for the sector,
“CAD REIT avg. Q1 year-over-year FFOPU [funds from operations per unit] and SSNOI [same store net operating income] growth = 1.4% (Q4 = +1.6%) and 4,3%, with FFOPU +0.4% and -0.6% vs. Scotia and consensus. Our 2024E/2025E AFFOPU [adjusted funds from operations] fell 0.4%/0.6% vs. 0.7%/1.0% for consensus; IFRS FV [fair value]as % of unit price fell 1% vs. 3% in Q4 and 5% in Q3 (lowest FV loss since Q3/22). Both Scotia and IFRS NAV cap were +5bp q/q, while implied cap fell 3bp q/q. Our avg. REIT NAVPU [net asset value per unit] fell 1.5% q/q vs. 2% Growth in Q4/23. Ratings changes: We upgraded Sienna Senior Living to SO [sector outperform], while downgraded Dream Residential, ERE, and RioCan (link) to SP. We recently initiated coverage on FirstService Corp (FSV) - link to our initiation. Our Top Growth Picks = BAM, CAR, CSH, GRT, IIP, SVI. Top Value Picks = AP, BN, DIR. Top Income Picks = AP, BAM, CHP, CRR, CRT, SIA. We still point to accelerated private market deals (towards end of year; Q1 = lowest in 4 years per Morguard) as part of a “Soft Landing” and start of BoC/Fed rate cuts as a key catalyst for CAD REIT sentiment (i.e., substantiating our sector avg. ~20% P/NAV discount). We still expect the sector to trade sideways in the interim”