CIBC real estate analyst recommends an ‘own what’s working’ strategy with these REITs

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

Analyst likes seniors housing, retail

CIBC analyst Dean Wilkinson reviewed the REIT market and reiterated top picks,

“Despite significant policy rate cuts over the past year, benchmark bond yields have barely moved. Indeed, the GoC 10yr has been in and around 3 per cent for the better part of four years … For the second month in a row, TSX REITs underperformed the broader TSX in October, with a total return of negative 2.8 per cent vs. the TSX at positive 1.0 per cent … Our REIT coverage universe remains at an average 12-per-cent discount to NAV and just under a 13 times forward P/FFO multiple, approaching levels that have historically led to increased transaction activity. However, within the universe there are strikingly wide disparities: Retail REITs are well within single-digit discounts on average, while discounts for Industrial REITs are in the mid-teens and Residential REITs display the widest discounts at over 20 per cent … We continue to lean towards the ‘own what’s working’ theme as the calendar runs out. By asset class, we continue to favour Seniors Housing (EXE, CSH) and Retail (FCR, PMZ), while Multifamily continues to trail (we like KMP domestically as well as GO and MHC for U.S. exposure)”

Apartment REITs under pressure

Also in the REIT sector, Scotiabank analyst Mario Saric attempted to forecast the new budget’s effects on the apartment REIT subsector,

“The Liberal government essentially reinforced prior immigration targets as anticipated in our view given the intended impact its arguably had on home prices and asking rents (i.e., downward pressure) … Overall, investor sentiment on Apartment REITs remains relatively soft in our view, with trough market asking rents the main catalyst for improvement (we did note the Ontario Rent control update as a potential positive; see link). That said, we think current valuation looks good for those willing to take a 6 month+ view (i.e., past the Spring leasing season)”

Mr. Saric has a “sector outperform rating” on Killam Apartment REIT (KMP.UN-T).

Hedge funds selling financials, staples, real estate

Citi strategist Alex Saunders surveyed global fund manager holdings,

“We saw long-only managers net buying last week, having especially strong inflows into Tech. They were also net buyers in Consumer Discretionary and Consumer Staples while selling Communications, Industrials, and Financials. Hedge funds, on the other hand, had mixed flows, buying Consumer Discretionary, Industrials, and Tech while selling Financials, Consumer Staples, and Real Estate. The top three sectors this week were Health Care, Tech, and Materials while the bottom three was made up by Financials, Communications, and Energy. Our market-implied regime analysis suggests that market internals are most correlated with the Goldilocks regime while the Normal regime is a close second. The tech-friendly Goldilocks regime saw its correlation rise up from recent lows as Tech had the strongest relative performance among sectors in the past month”

Bluesky post of the day

Diversion

“The annual highest-paid dead musicians list is out for 2025” – A Journal of Musical Things