Andrew Moffs

Real estate in the public markets has probably been the most unloved sector since the beginning of 2022. Record underweight fund flows into the sector. But all that's changing.

Fall 2023, with pivot from the Fed signalling the end of Fed rate tightening, was very constructive for publicly traded real estate. Historically at the end of a Fed rate-hiking cycle, REITs typically outperform to the tune of 24%, on average, in the 4 quarters after the cycle ends. 

Looking at the private markets, fundamentals in the right sectors continue to be quite strong. Pricing is now becoming more evident with interest rates no longer going up, companies can figure out their cost of capital. Public market should be a winner coming out of this.

Thinking about real estate valuation, so much focus is on interest rates. Why? Because interest rates dictate the cap rate, which is the going-in yield when a property is bought. There's nothing you can do about the cap rate, so you have to apply the cap rate to the net operating income of the property. Meaning where is income going in the future?

That's all he focuses on. Supply/demand fundamentals of different markets. He's intensely focused today on industrial warehouse real estate, such an easy call. Canada, US, globally. Rents today are 40% above where in-place rents are in leases, so that's a tremendous opportunity.

Also focused on housing including manufactured, and grocery-anchored shopping centres with defensive income and strong internal growth.

Third-largest self-storage operator in the US. Typically, sector is very defensive. He doesn't own the US sector, wide range of outcomes on operations this year. New rental rates back at 2019 levels. Yield is in the 4.7% range.

Largest class A, enclosed mall operator in the US. Great outlet centre business, plus investments abroad. "A" malls have shown resilience, defying predictions for the sector. Class A will continue to thrive. Great job securing higher-end tenants.

Not everyone's back in the office, headwind for office demand. Negative headlines are pretty much behind the sector, now a show-me story. Can space be leased to same extent today as before, and at what cost? Sold data centre portfolio, gave it breathing room on yield and debt. Recently took on extra debt, further pressure on yield. 

Strong portfolio, but he's not ready to bet today. Lots of market headwinds. Have to consider, asset by asset, how their portfolio has changed over time.

Definitely. You have to go asset by asset, bottom-up. Typical office building? Large-block user? Multiple users? Law firms? Tech?

For example, AP.UN's bread and butter has typically been the smaller tenant that typically will stay in their space but doesn't take as much space.

Well managed. Reason for underperformance has to do with interest rates and, more recently, with supply. No pricing power, material headwind. Tremendous demand in the US Sun Belt from job growth and migration. Expects lower growth, but could be good setup for 2025. Hold on, collect the yield, hope for better things in 2025.

Really likes it, though illiquid. Adept at growing portfolio base and NAV, despite not having to issue any equity, the holy grail of real estate. Really likes Canadian western apartment markets, especially where no rent control. Rents go higher, and so NAV goes higher.

Bellwether for industrial real estate locally. Really great enterprise, good at operating logistics assets globally. In the best markets. Robust internal growth, discount to NAV. Sees $140 NAV. Levers to pull like solar and EV, it's just the beginning.

Very constructive on it. Best grocery-anchored shopping centre portfolio globally. Urban, only in key centres in Canada. 30% discount to intrinsic value, 5.5% yield while you wait. 3-4% earnings growth. More upside.

Manufactured housing is defensive, last bastion of affordable housing. 55% of portfolio is in this area. Undersupply in US. Never had a year of negative net operating income growth. 15-20% discount to NAV today. Yield is 3%.

Great business, fundamentals are so strong. He sold as it reached his NAV. He'd buy again on any pullback. Great opportunity to live the American dream of a single-family home via renting.

Largest industrial REIT listed in Canada. Diversified. 30% leased to Magna, mostly in Europe and Austria. Well run, good properties. Stuck in a range, mainly because uncertain economy has slowed down approvals on large-space leases. Expects higher occupancy in second half of 2024. 10-15% discount to NAV, yield of over 4%.

Diversified REITs are difficult to own in a bear market. Discount to NAV. Earnings momentum just isn't there. A show-me stock. Company's refocusing. Value there, but will take time. Nice 6.5% distribution yield.

Takeover by Blackstone. Shareholder vote is next week. Expects deal to close next month. Still upside between trading price today and offer price. Don't expect a higher offer to come in.