Tactical advice in REIT sector from a Scotiabank analyst

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank REIT analyst Mario Saric recommends clients move some assets from apartment REITs,
“The Federal Government announced an avg. 22% lower Permanent Resident (PRs) target through 2026 (down an avg. 110k per year), while reiterating announced target reductions to Foreign Student permits (August year-to-date; down 21% year-over-year) and non-permanent residents in March (target 5% of total population by 2026 vs. 2023A of 6.2% and 7.5% recently). Apartment REITs reacted negatively to the news, down an avg. 1.3% vs. flat for sector, despite lagging ~5% since mid-September … While in some ways we think the 10% correction is overdone given our 2025E blended rent growth of 4%-6% reflects an 5% avg. decline in asking rents, market focus returning to solid FFOPU growth and away from asking rents is likely required for a strong recovery to emerge. We’re inclined to keep with our tactical trade for now (on the whole, reallocating a bit of Multi Family into Seniors Housing, Office and select Retail (the latter also sensitive to population growth, but perhaps to a less direct extent) for another 3%-5%”
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RB Advisors deputy chief investment officer Dan Suzuki is concerned about resurgent inflation pressure,
“While the Fed’s policy stance appears tight on a variety of metrics, liquidity conditions tell a different story. The Fed manages liquidity through its policy tools, but it’s crucial to remember that the Fed is just one source of liquidity among several. The Fed acts like a coxswain on a rowing team, steering the liquidity boat, but the rowers (factors like capital markets, fiscal policy, banks and foreign capital) aren’t always in sync. Despite the Fed’s efforts to tighten liquidity over the past year, other forces have moved in the opposite direction, keeping financial conditions relatively loose … This is the first time in history that the Fed has ever cut interest rates when corporate profits were strong (currently ~10% y/y) and accelerating … Easing into an economy with ample liquidity and accelerating corporate profits could reignite inflationary pressures, particularly when key components such as food, health care, education and autos are already stabilizing or accelerating. Persistently higher inflation could eventually force the Fed into another round of tightening, potentially choking off growth. But in the meantime, faster nominal growth could benefit certain segments of the market, including US small caps, deep cyclical sectors (such as industrials, energy, and materials), and non-China emerging markets”
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When the calendar shifts to 2025, investors will start comparing valuations to projections for 2026. BMO energy infrastructure analyst Ben Pham looked for stocks where valuations are set to fall most in 2026, making stocks more attractive,
“We expect the Street will value energy infrastructure stocks on a 2026 basis beginning in early 2025 … 1) BLX, TRP, and H have the largest multiple difference between consensus 2026 and 2025 estimates on an EV/EBITDA basis (1x/0.9x/0.8x). NPI has the lowest (-0.9x); 2) BEP/H/AQN (restricted) have the highest absolute EV/EBITDA multiple at 12.7-15.4x, and ACO.X has the lowest (8.4x); and 3) NPI/ TA have negative EV/EBITDA multiple differences (implying declining EBITDA and/or higher capital issuances) … Among utilities, AQN (restricted), H, and FTS have the largest multiple difference between consensus 2026 and 2025 estimates on a P/E basis (2.2x/1.4x/0.8x); 2) H has the highest absolute P/E multiple at 21.3x, and ACO.X has the lowest (11.5x); and 3) ACO.X has the lowest P/E multiple difference (0.3x) … Stocks that look interesting on 2025/2026 multiple differences but where we remain Market Perform (and why?): 1) TRP (we like the “new” TRP but the premium relative valuation following strong performance YTD holds us back); 2) H (similar to TRP, EPS growth is one of highest, but already reflected in premium valuation); and 3) CPX (we have a positive bias on Alberta power levered equities and specifically the cloud computing opportunity in the province, but closest peer TA remains our relative preference)”
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Diversion: “Scientists Grow Crops in Near-Total Darkness Thanks to New ‘Electro-Agriculture’ Technique” – Gizmodo