Vision Capital’s Andrew Moffs: Top Picks

Analyzing the Key Trends and Top Picks in the Real Estate Market with Andrew Moffs

Editorial Team (ET)May 19, 2025

Real estate investors, hold onto your hats! The market is buzzing with activity, and Andrew Moffs, Senior Vice President and Portfolio Manager at Vision Capital, is here to break down the latest trends and top picks for May 30, 2024. Moffs brings a wealth of experience and insight into the real estate sector, making him a voice worth listening to in these dynamic times.

Market Outlook

The fourth quarter of 2023 saw a robust rally across North American publicly traded real estate securities, but this year has been a different story. Pricing has retracted, primarily due to the hawkish tone from the U.S. Federal Open Market Committee's May 1 meeting minutes. This has cast uncertainty over the timing and extent of potential interest rate cuts from their current high levels.

Amidst this consolidation, there's a silver lining for Real Estate Investment Trusts (REITs). We're approaching an inflection point where previously adverse market factors are shifting in favor of the sector.

With the prospect of peak interest rates, the upward pressure on property capitalization rates is easing, providing a floor under property valuations. REIT implied cap rates continue to trade at a significant spread to both appraisal and transaction values in the private market. This sets the stage for convergence in pricing between the public and private markets, benefiting REIT unit prices.

REITs have been trading at a discount compared to their private market counterparts. As interest rates stabilize, we can expect this gap to close, leading to potential gains for publicly traded REITs.

Fund Managers' Positioning

BofA reports that fund managers' REIT holdings are near the extreme lows seen during the Great Financial Crisis in 2009, with a 28 percent net underweight. This historical context suggests that a recovery in investor sentiment could lead to increased REIT fund flows as managers rebalance towards historical exposures, enhancing demand and pricing for REIT securities.

Capital Market Recovery

The capital-intensive nature of the real estate sector means that a recovery in credit markets will drive greater transaction volume and improve the prospects for M&A activities. Blackstone, a notable player in this space, has already capitalized on public-private arbitrage with the privatization of Tricon Residential Inc. and Apartment Income REIT Corp., both at significant premiums to their prior closing share prices.

Andrew Moffs' Top Picks

Andrew Moffs' top picks for this market environment include Boardwalk REIT, Digital Realty Trust, Inc., and Chartwell Retirement Residences. Each of these REITs has unique strengths and growth prospects that make them standout choices.

Boardwalk REIT (BEI.UN TSX)

Boardwalk Real Estate Investment Trust is the second-largest publicly traded apartment REIT in Canada by market capitalization. As of the end of the first quarter of 2024, it owned over 34,000 suites across Canada, with nearly two-thirds of these units in Alberta.

The Alberta rental market remains strong due to its affordability compared to other regions in Canada. High levels of both international and interprovincial migration to Alberta have driven demand. In 2023, Alberta's population grew by 4.4 percent year-over-year, the highest rate for any province or territory and the highest for Alberta since 1981.

Boardwalk benefits from significant exposure to Alberta and Saskatchewan, both of which lack rent controls. This allows the REIT to increase rents more dynamically, bringing them closer to market rents upon lease expiration. In contrast, other Canadian provinces with rent controls often face limitations, constraining rent increases to levels that may be below inflationary expense increases. Despite these advantages, Boardwalk's units trade at a compelling 17 percent discount to its net asset value (NAV).

Digital Realty Trust, Inc. (DLR NYSE)

Digital Realty Trust, Inc. is a leading global provider of data center, colocation, and interconnection solutions. It owns and operates 309 data centers, totaling 38.1 million square feet, with 62 percent in the U.S., 21 percent in Europe, and the remainder in Asia-Pacific and Africa.

The bullish thesis for data centers revolves around the continued growth of data consumption. Consumers and businesses not only require more information each year but also demand faster speeds. Giants like Amazon, Microsoft, Apple, and Google have recognized this need, developing and leasing data centers to enable hyper-growth.

The mass adoption of artificial intelligence (AI) has further fueled demand, causing U.S. data center new-leasing activity to skyrocket nearly 400 percent year-over-year. This surge has strained regional power grids, leading local municipalities worldwide to enforce building moratoriums and restrict power allocation. While new supply is curtailed, demand remains high, resulting in lower vacancy rates and rising rental rates, particularly in key markets like Northern Virginia.

As supply and demand fundamentals shift favorably, Digital Realty is well-positioned as a premier operator and a preferred partner for institutional capital. The company recently announced a $7 billion joint venture with Blackstone to develop hyper-scale data center campuses, further strengthening its market position.

Chartwell Retirement Residences (CSH.UN TSX)

Chartwell Retirement Residences is the largest owner of seniors housing in Canada, with over 26,000 suites across Ontario, Quebec, Alberta, and British Columbia. The company has seen increasing occupancy over the past year as the effects of the pandemic wane and seniors move back into retirement homes for the care and support they need.

Supply under construction has diminished to only 1.2 percent of inventory due to higher interest rates and construction costs, making development projects less profitable. Simultaneously, the population growth rate of seniors has increased to over four percent, creating a supportive operating environment for Chartwell. This has led to a seven percent increase in occupancy to 86 percent over the last 12 months.

Chartwell's current trading at an implied cap rate of nearly 7.1 percent, or approximately a 10 percent discount to NAV, presents a compelling investment opportunity. As occupancy and earnings continue to grow, the company is poised for further gains.

Conclusion

The real estate sector is navigating a period of consolidation, but the outlook remains positive for REITs as market conditions shift favorably. Andrew Moffs' top picks—Boardwalk REIT, Digital Realty Trust, Inc., and Chartwell Retirement Residences—each offer unique strengths and growth prospects. Investors should keep an eye on these opportunities as they position themselves for potential gains.

Bloomberg

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