OTCPK:SMMCF - Post by User
Post by
retiredcfon Sep 09, 2022 3:25pm
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Post# 34952990
Scotiabank
Scotiabank Scotiabank analyst Himanshu Gupta warned clients “Don’t Start Bottom Fishing (yet)” in industrial REITs,
“Has the sector bottomed out relative to bond yields? Our answer – No, we don’t think so. Is there any growth premium left in Industrial REITs valuation? Our answer – Nopes, not anymore … In our view, the pullback in REITs has essentially been due to AFFO [adjusted funds from operations] multiple compression with the REIT sector now trading at 16.2x AFFO multiple vs 20.7x multiple earlier this year (essentially an all-time high). The AFFO multiple spread to GoC bond yields is now approaching historical average, and it seems that the AFFO multiple compression phase is well past its mid-point (or perhaps nearing its end). Given the spike in bond yields, the spread between REIT Sector AFFO yield and 10-yr GoC bond yield has narrowed to 299 bp versus an historical average of 439bp since 1998. During periods where the 10-yr GoC yield exceeded 3% (and ignoring GFC), the average historical spread was 390 bp. Today, an average 390 bp spread would entail another 2.1 pt decline in AFFO trading multiple or 10%-15% unit price downside.”
Mr. Gupta has outperform ratings on Summit Industrial Income REIT, Granite REIT and Dream industrial REIT.