Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank real estate analysts Mario Saric and Himanshu Gupta discussed the results of a recent survey of major institutional lenders in the sector,
“Lending sentiment gaining some traction: Target CRE loan book growth = 16% (vs 13% last year) with more lenders looking to increase allocations. Lenders expect flat mortgage spreads in 2024, despite huge base rate uptick y/y. Apartments make it 5-for-5 as the most popular again (five years in a row), with Industrial retaking the #2 spot. Office lender sentiment is by far the lowest and getting worse. In contrast, Seniors Housing saw the highest y/y uptick in lender sentiment. Fewer lenders are concerned with Enclosed Malls. Overall, we believe the results support our preferred asset classes heading into 2024, namely Senior Housing, Apartments, and Industrial. We still believe REITs are a levered economic play, requiring lower Corporate BBB bond yields for outsized gains. Softish landing = 20%+ return upside; Hard landing = ~10% downside”
The analysts have “sector outperform” ratings on CAP REIT, Interrent REIT, Dream Residential REIT , Tricon Residential Inc., Choice Properties REIT, Crombie REIT, CT REIT, RioCan REIT, Allied Properties REIT, Dream Industrial REIT, Granite REIT, Chartwell Retirement Residences, and StorageVault.
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A bullish Savita Subramanian, U.S. quantitative strategist at BofA Securities, sees five reasons why the S&P 500 will hit 5000 in 2024,
“1. Too many skunks at the garden party … Pension equity weights are at 25-yr lows, sell-side market targets are mostly underwater, consensus long-term earnings growth for the S&P 500 is at its lows (ex. COVID), and active funds are hugging their benchmarks … 2. Bottom-up BofA analyst survey reads goldilocks A survey of BofA analysts’ 2024 views reveals broad expectations for (i) decelerating but not declining prices, (ii) higher margins, where (iii) continued wage inflation are offset by (iv) efficiency gains and (v) falling costs elsewhere … 3. Profits: EPS can accelerate even if GDP slows. S&P 500 profits had their recession and we forecast $235 (+6% year-over-year) in 2024 EPS despite slowing GDP. The 1950s establishes precedent … 4. Election year: more gives, less takes. Election years have been positive for equities … 5. US advantages: de-globalization, oil, USD, boomers. U.S. exceptionalism is intact. The U.S. began to wean itself off of China in 2018, and re-shoring has been cited as a tailwind by companies. Higher oil has boosted EPS and US energy security is a major advantage”
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A Bloomberg report highlights the big losses in renewable power investment,
“A year after President Joe Biden’s landmark climate law promised billions of dollars for America’s switch to clean energy, some of the nation’s most ambitious renewable power projects have been shelved, electric car sales are missing targets and investors are fleeing the sector in droves. The result is a $30 billion collapse in US clean energy stocks in the last six months—a market many investors expected to flourish in the aftermath of the law’s passage… Along with sky-high financing costs, clean energy companies face the problems of winning over potential neighbors for their projects, securing government permits and plugging into a creaky power grid unable to handle all the renewable power that’s planned… The specter of bankruptcies now haunts the sector. Electric bus maker Proterra Inc. filed for Chapter 11 protection earlier this year, with solar financing firm Sunlight Financial Holdings Inc. following soon after…
“A $30 Billion Rout Shows Toll of Fed Hikes on Biden Energy Goals” – Bloomberg
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Diversion: “Jeff Bezos’ Superyacht Is So Damned Big It Has to Hang Out With Oil Tankers” – Gizmodo
Scott Barlow