12-05-2025
Top picks, active trends in apartment REITs from a Scotiabank analyst
Daily roundup of research and analysis from The Globe and Mail's market strategist Scott Barlow
Scotiabank analyst Mario Saric described trends in apartment REITs,
'Average National asking rent saw another month of m/m positive growth following back-to-back monthly erosion since August 2024. We estimate IIP markets were +0.8% (driven by strong outperformance in GTA West and Montreal), reversing all the 0.6% erosion from March, followed by BEI markets at +0.3% (dragged lower due to -0.5% and -0.8% in 1BR and 2BR Calgary), also reversing all of its 0.2% erosion last month. CAR, KMP and MI markets were all tied at +0.1%, though KMP markets were +1.7% last month, while CAR and MI were -1.8% and -0.8%, respectively … Comparing est. market rent growth to implied cap rate compression, most apartment REITs outperformed the market rental data by ~2%-11%, with KMP and IIP outperforming the most by ~11% and MI the least with ~2%. Apartments outperformed both Condos and Townhouses in April … Our SO-rated Apartments = IIP and CAR (IIP = more beta and catalyst-specific) while KMP is our top 'defensive' Apartment pick (partly due to oil pressure)'
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JP Morgan strategist Mislav Matejka identified three reasons U.S. markets may underperform global counterparts in the coming decade,
'More than 40% of the outperformance was due to Mag-7, which may not be as exceptional anymore in the world of democratizing AI. The risk is that Mag-7's return on invested capital underwhelms. The concern is also over the excessive concentration and ownership, where retail has bought every dip so far, but that might be changing if labour markets were to weaken … USD strengthened through the last 15 years, but it might not trade like a safe haven as much as it did historically, especially if the real interest rate differential is narrowing, and if the Fed's credibility is called into question … US activity generally outpaced the Rest over the past few years, but that cushion might be eroding given elevated fiscal deficits and the potentially greater fiscal impulse now coming from Europe and from China'
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BofA Securities head of global research Candace Browning summarized a potential revolution in aerospace,
'Investor attention around open rotor aircraft engines has been rising partly because of GE's interest and willingness to invest. The technology, which is a turbofan engine but without the outer housing, offers 20% fuel savings, which also helps to reduce emissions. Engine makers could find the business more profitable--Ron believes that open rotor engines might be sold at positive margins, unlike the low or negative margins of today's commercial aircraft engines. These new engines would probably require a new clean sheet aircraft, since increased fan diameter makes direct replacement of existing engines unlikely. But the timing for a new aircraft design could be excellent as operators aim to replace their aging fleets while pursuing climate goals. A program launched now could be ready to fulfill orders in the early 2030s and there's reason to believe an open rotor program could eventually capture a majority of market share in the narrowbody segment'
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Bluesky post of the day:
Diversion: 'Scientists Discover Hidden Cause of Alzheimer's Hiding in Plain Sight' – SciTech Daily
