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Strong recovery ahead for Canadian apartment REITs

Strong recovery ahead for Canadian apartment REITs

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Scotia analyst Mario Saric sees a strong recovery for the resilient apartment REIT sector,

“OUR TAKE: Neutral. CMHC released its Annual Rental Survey. National vacancy was up 120 basis points year-over-year to 3.2% and above the 2.8% LTA [long term average], but same-asset rent growth was a solid 3.5% (vs. 3.9% in 2019) and 2.7% LTA. Overall, we were surprised to see Condos outperform Apartments on vacancy and rent growth given the higher price point but a “tough” year of 3.5% rent growth seems enviable… Apartment REITs should deliver superior NTM NAVPU [net to market net asset value per unit] growth (9% vs. 6% sector avg). We think consensus Apartment NAV be moving higher on lower cap rates, driving possible 15%+ NAVPU growth vs. our existing 9% forecast (we exclude cap rate changes)… TCN and IIP are SO-rated, but we could become more constructive on our Apartment ratings as the year evolves. The key question = timing as Q4/20 and Q1/20 results are unlikely to inspire, but we may see lower cap rates with those results driving NAVs (and unit prices) higher nonetheless.”

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“@SBarlow_ROB Strong recovery ahead for Cdn apartment REITs (BNS)” – (research excerpt) Twitter

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Credit Suisse’s acclaimed global strategist Andrew Garthwaite published a list of 10 possible investment surprises for 2021. These are market events where his core outlook is mostly likely to be wrong,

“Global equities rise by 30%; core view: global equities rise by c12%. Technology underperforms; core view: small overweight but more selective than in the past. US 10-year bond yields rise to 2%; core view: US 10-year yields reach 1.4% by year-end. Banks are the best performing major sector; core view: banks are a low-conviction overweight and not expected to be the best performers. China GDP growth is sub-5%; core view: GDP growth accelerates at 7.1% in 2021. The dollar declines sharply and EURUSD reaches 1.35 by mid-21; core view: EURUSD reaches 1.25 by end-21 … Oil goes to $80pb; core view: oil goes to $60pb … Japan is the best performing major region in dollar terms; core view: Japanese equities rise only moderately; we stay benchmark in local currency terms.”

I find this exercise helpful. The oil section, for instance, shows that the main risk to his primary forecasts is that he’s not bullish enough on crude

“@SBarlow_ROB CS’s Garthwaite: 10 Potential Investment Surprises for 2021” – (research excerpt) Twitter

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A sobering Citi report by analyst Andrew Baum, MD implies that COVID-19 will be a major economic and health issue for far longer than most investors believe (my emphasis),

“Despite the robust reduction in symptomatic disease demonstrated with now five vaccines, the global challenge to limit the medical and economic costs of COVID-19 are only just beginning. We already have evidence from recent NVAX and JNJ vaccines trials that the protective immunity of licensed vaccines against symptomatic infection will likely fall in the future below acceptable levels given the evolution of novel VOC (variants of concern). The optimistic best case scenario is that despite diminished antibody neutralization against new variants, sustained cellular immunity (T cells) generated by the licensed vaccines will continue to result in materially lower risk of severe disease. The more probable scenario requires annual boosters with likely multivalent (addressing more than one variant) vaccines. The challenges of booster and multivalent development are addressed in this report. Public health measures need to remain in place globally to reduce replication rates and thus lower risk of novel VOC. The long term economic and medical consequences from both severe COVID-19 and so called long COVID are almost certainly under-appreciated.”

@SBarlow_ROB This sucks. Sobering report from Citi analyst Andrew Baum MD: “The long term economic and medical consequences from both severe COVID-19 and so called long COVID are almost certainly under-appreciated” – (research excerpt) Twitter

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Diversion: “Silence of the Lambs’ Reunion! Anthony Hopkins & Jodie Foster Talk Dr. Lecter” – Actors on Actors (video)

Tweet of the Day:

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Published at Wed, 03 Feb 2021 12:42:04 +0000

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Written by Riel Roussopoulos

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