Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank analyst Mario Saric compares current REIT valuations to 2007 and finds the sector with upside now,
“Let’s take it back to 2007. There has been a lot of chatter on recent spiking U.S. 10YR hitting prior peak of 5.2 per cent in June 2007 . As a result, we thought it would be interesting to compare current valuation to then ... Overall, the CAD REIT Index is 3 per cent below June 2007 and is trading approximately 2 times below June 2007 P/AFFO [price to adjusted funds from operations] and at a similar implied cap rate despite the current 10YRGOC of 3.
Our view: Our Outperform ratings include Allied, Boardwalk, BSR, CAPREIT, Chartwell, Colliers, Dream Industrial, FirstService, First Capital, Granite, InterRent, Killam Apartment, Minto Apartment, Morguard Residential, RioCan, SmartCentres, and StorageVault. Q2 results were largely as expected, with a pick-up in earnings growth supported by strength in fundamentals across most property types.
“Across the ‘Big 5′ in Q3/23, cash earnings are expected to be down 7 per cent year-over-year , largely reflecting higher y/y credit provisions of 32 basis points/$2.6-billion and negative operating leverage . We are looking for flat to lower y/y earnings at most key business segments, with U.S & Int’l Banking being the one bright spot. The Canadian bank index’s forward P/E of 9.
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