Canadian Real Estate Investment Trusts

Research evidence excerpt

Canadian Real Estate Investment Trusts

ing stronger interest in names where heavily

discounted valuations persist. Compression in long bond yields from recent highs and discomfort with

elevated valuations in broader equity markets have likely also helped.

Well-equipped to navigate an uneven road. The USMCA review, extended inflationary pressures, and

potentially drawn-out negotiations to resolve the Iran conflict will likely keep investors anxious. Still,

we believe the sector remains capable of delivering healthy N12M returns from accelerating earnings

and NAV growth (mid-to-high single digits), attractive yields, and reasonable valuations (particularly vs.

other yield-oriented sectors). In our view, the sector’s 9% NAV discount still provides a good margin for

error. However, AFFO yield (260 bps) and implied cap rate (313 bps) spreads to the 10Y GoC are well

below average. For the next leg up, we believe positive estimate revisions, lower bond yields, inflows

from other corners of the market, and/or further M&A are likely prerequisites.

Seniors housing tops our pecking order as we believe sector best 2025A-27E earnings CAGRs (11%) and

structural tailwinds justify premium valuations. Industrial is next with attractive value, solid earnings

growth, and signs suggesting market fundamentals are set to accelerate. Self-storage follows on resilient

fundamentals and strong private market values. Our constructive view in retail is underpinned by

solid operating momentum and steady earnings growth, though unit price gains may take a near-term

breather with the group trading closer to NAV. We see multi-family as excessively discounted on an

absolute and relative basis with an inflection in fundamentals being a positive catalyst. In office, earnings