RBC22 October 2024
RBC Capital Markets analyst Pammi Bir predicts a moderating of REIT profit growth and thinks investors need to be selective, “As Q3 reporting kicks off this week, our top picks are intact. After a strong Q2, our forecasts reflect earnings growth moderating to up 1 per cent year-over-year, with seniors housing well ahead of the pack. Though bond yields remain volatile, recent cap rate data points to a plateauing trendline which should support underlying asset values and NAVs. As noted in our recent Q4 2024 REIT Quarterly, compression in long bond yields is a likely prerequisite for the next move up in sector valuations. That said, we believe attractive risk-adjusted returns remain on the table for our preferred picks in seniors housing, multi-family, industrial, retail, and self-storage … The sector’s trading at 14 per cent below NAV, a still-decent cushion for error in our view. At a 6.2-per-cent AFFO [adjusted funds from operations] yield (16 times N12M AFFO), the 301 bps spread to the 10Y GoC and 63 bps spread to Moody’s BAA are below long-term levels (361 bps and 97 bps, respectively), yet remain within fair value goalposts”
Mr. Bir has “outperform” ratings on Boardwalk REIT, BSR REIT, CAPREIT, Flagship Communities REIT, InterRent REIT, Killam Apartment REIT, Minto Apartment REIT, Morguard Residential REIT, Chartwell Retirement Residences, Dream Industrial REIT, Granite REIT, First Capital REIT, RioCan REIT, Smartcentres REIT, and StorageVault Canada Inc.