After Devastating Year, REIT Sector Analysts See Positives for 2009

The Canadian real estate income trust sector has never been hit harder than it was in 2008, but for the trio of analysts at Canaccord Adams who cover the industry, there's hope for a turnaround next year.

In a report published this past Friday, Shant Poladian, Jonathan Kelcher and Yashwant Sankpal told clients noted that the S&P/TSX Capped REIT Index is down 44% year-to-date versus a 37.4% drop in the S&P/TSX Composite Index. The worst year prior to this year based on the ten years of historical data available, was 1998 when the sector declined 8.5%, they added.

Meanwhile, in the U.S., the FTSE NAREIT US Real Estate Index is down 42.4% on a year-to-date basis, compared to the 38.3% decline of the S&P 500, representing the worst year since 1974 when US REITs fell 21.4%.

Said the analysts:

Commercial real estate became a “dirty word” due to credit markets, not property fundamentals. We believe the market is confusing the relative health of commercial property fundamentals with the dysfunctional current nature of credit markets.

In fact, they told clients that Canadian commercial real estate property fundamentals are in great shape in terms of vacancy rates and new supply when compared to their U.S. counterparts. and believe Canadian commercial real estate is in a "much better position to weather an economic downturn than US commercial real estate."

The analysts see some positive signs for the sector going forward, including a tightening in AAA CMBX spreads and the US TED spread, which is at its lowest level since early September.

Perhaps an even more tangible sign of improvement for investors, they added, is the fact that US REITs are up 54% since hitting its 52-week low on November 21, 2008.