Andrew Moffs' Top Picks: January 31, 2022
BNN Bloomberg
Top picks from Andrew Moffs, senior vice president and portfolio manager, Vision Capital
MARKET OUTLOOK:
In spite of surging inflationary readings across both Canadian and U.S. consumer price indices, policymakers have delayed raising interest rates in response to headwinds challenging the global recovery, namely the Omicron variant continuing to hinder economic activity and cloud prospects for global growth.
The market is further challenged by the U.S. Federal Open Market Committee announcing at its January 26th meeting that it would accelerate shrinking the Fed’s balance sheet, placing upward pressure on bond yields and causing a broad sell-off of North American equities.
Notwithstanding macroeconomic forces and the risk of war on the European continent, fundamentals that dictate the prospect of publicly-traded real estate securities remain strong, suggesting the recent indiscriminate pullback in share prices have left select REITs/REOCs trading significantly below the net asset value at which they would be appraised in the private market.
The REIT sector has generally served as an effective hedge against inflation, benefiting twofold from growing cash flows as operators mark rents to market and underlying property values appreciating to reflect the higher replacement cost of new developments.
Applying this assessment to the broad asset class may prove inappropriate, as pricing power attributable to tight supply-demand dynamics must be present to realize rent growth. Property types such as multi-family apartments and self-storage also benefit from short lease durations, allowing for a faster conversion of existing tenants to market rents.
