Andrew Moffs' Top Picks: November 29, 2021
BNN Bloomberg
Top picks from Andrew Moffs, senior vice president and portfolio manager at Vision Capital
MARKET OUTLOOK: Strong economic data is supporting a growing body of policymakers within the FOMC that are advocating for an accelerated timeline to withdraw stimulus measures, though the consensus approach reflects continuing patience on the path to normalization, as the US$120 billion asset purchase program began winding down this month. Including food and energy prices, the PCE price index increased over 5 per cent in October, while concurrently, consumption increased 1.3 per cent and initial jobless claims fell to 199,000, its lowest level since 1969.
The REIT sector has generally served as an effective hedge against elevated and rising prices, posting positive real returns almost 70 per cent of the time over a rolling 12-month period from 1973 to 2020, when inflation was greater than 3 per cent and increasing.
Though publicly-traded REITs have posted outsized returns relative to broad indices year-to-date, structural themes combined with an improving economic landscape underpin property fundamentals, resulting in improving rent growth, occupancy and leasing activity that is approaching and, dependent on sector, eclipsing pre-pandemic levels. Stock performance has been corroborated by earning revisions, as 79 per cent of U.S REITs that provide guidance raised estimates in recent quarters.
Spurred on by cheap, easy access to capital, REIT mergers & acquisition activity has continued to accelerate in the second half 2021. S&P Global Market Intelligence reports that real estate led all GICS sectors in transaction volume for Q3, totaling US$193 billion, in the context of a record-setting pace by deal and dollar value in 2021 as economic activity recovers from pandemic lows.
These transactions are supportive of price discovery and lend confidence to NAV calculations as volumes improve. Additionally, publicly-traded REITs are well positioned to benefit from this environment, either through the price appreciation of publicly-traded shares to reflect the increase of underlying property values, or privatizations of undervalued securities at premiums, thereby closing the gap to NAV.TOP PICKS:
Boardwalk REIT (BEI-U TSX) Boardwalk REIT, the second largest publicly-traded apartment REIT in Canada, owns over 33,000 suites across 200 properties. With a focus on Alberta and Saskatchewan, the REIT owns assets ranging from Class A high-rise to garden-style Class B apartments concentrated in Edmonton (37 per cent of suites), Calgary (17 per cent) and Montreal (14 per cent).
